It
is a common misconception in some areas that restrictive covenants are rarely
enforceable and generally are not worth the paper they are written on. The recent High Court case of Croesus Financial Services Ltd v Bradshaw
is a reminder that a well drafted restrictive covenant can be enforced to
protect the business following the departure of key employees.
In this case, twelve-month restrictive covenants prohibiting two
ex-employees from soliciting and dealing with their former clients were
upheld. Croesus provides advice in the
financial services sector, including life assurance, pensions, investments and
saving products. The court found that
the pattern of client contact in this sector and the strength of personal
relationships, together with the amount of time needed to build new
relationships, made a twelve month restrictive period reasonable. The restriction of the covenant to clients
with whom the ex-employees had engaged in more than trivial business in the
previous two years, was also relevant. The Court awarded Croesus
£300,000 in damages together with a limited injunction for the remainder of the
12 month period.
This case demonstrates that restrictive covenants can be worth very much
more than the paper they are written on. The trick however is to make sure that
covenants are carefully constructed so that, rather than being a restraint of
trade, they protect a legitimate business interest. Whether or not a covenant
is enforceable depends on the facts in each case. This case is not authority for the
enforceability of all twelve-month non-solicitation and non-dealing
covenants. It is however a reminder that
getting your covenants right is an essential part of protecting your business
against competition by departing employees.
In this case, twelve-month restrictive covenants prohibiting two
ex-employees from soliciting and dealing with their former clients were
upheld. Croesus provides advice in the
financial services sector, including life assurance, pensions, investments and
saving products. The court found that
the pattern of client contact in this sector and the strength of personal
relationships, together with the amount of time needed to build new
relationships, made a twelve month restrictive period reasonable. The restriction of the covenant to clients
with whom the ex-employees had engaged in more than trivial business in the
previous two years, was also relevant. The Court awarded Croesus
£300,000 in damages together with a limited injunction for the remainder of the
12 month period.