Many employers will have experienced the situation whereby a senior employee leaves the company and shortly afterwards begins to solicit key clients in breach of his/her restrictive covenants. The question that is often asked is what the employer can do in this situation and whether it should pursue the ex-employee and new employer with an injunction and enforce the covenant. We are often surprised by the number of clients who believe that the covenant would not be enforceable so it is not worth pursuing the matter. This case again demonstrates that a well drafted non-solicitation of clients covenant is perfectly enforceable and that it could apply for a period of up to 12 months if the employer can justify the reasons why.
Romero Insurance Brokers Ltd v Templeton (2013) concerned a senior insurance broker who had been working at the company for many years. His role involved direct contact with clients and he had built up strong relationships with key clients of the employer over a long period of time. He was placed at risk of redundancy and asked to take leave at home while the employer conducted the redundancy process. Shortly after this he resigned and claimed constructive dismissal on account of the employer having breached his contract of employment on a number of grounds, the main one being that the redundancy process was a sham. The Court had to deal with two questions: a) Is the covenant reasonable and enforceable? and b) did the employer act in a way so as to fundamentally breach the contract of employment. This second issue was important because if the employee could prove a breach of contract, the covenants would then be void.
On the issue of the covenant, the Court held that the covenant was reasonable because (a) the employer had a legitimate business interest to protect, namely its clients, (b) that the employee was in a position whereby he had direct contact and relationships with those clients, and (c) the covenant was reasonably drafted. The main point of contention raised by the employee was that the period of 12 months was too long and unnecessary. However, the Court held that it was not, on account of the nature of the business of the insurance industry. 12 months was reasonable because insurance policies are often renewed on an annual basis. A shorter period would have been of no use to the employer. Equally, the Court held that a longer period would have been unenforceable.
On the issue of constructive dismissal, the Court held on the facts that the employer had engaged in a genuine redundancy process and that it was the employee who had decided not to co-operate in this process. There were some minor aspects of the procedure that the employer did not follow through correctly, however, these were not on their own sufficient to constitute a serious breach of the contract. For these reasons, there were no grounds for breach of contract or constructive dismissal as alleged by the employee.
This case confirms the legal position that non-solicitation and/or non-dealing with clients clauses are perfectly enforceable and can be drafted for a period of up to 12 months. However, employers must be careful to fix a period that is based on their specific business needs. Not all employers will be able to justify a 12 month restriction. If a shorter period is sufficient to protect their business interests, then the covenants should be drafted on that basis. In addition, employers are advised to ensure any processes and procedures leading up to the termination of employment are followed through correctly and carefully. Quite often employees will use the conduct of the employer and any defects in the procedure to argue breach of contract as a way to avoid the covenants.
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