Restrictive Covenants - not worth the paper they are written on?

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.
Rachel Garland