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Dispute resolution: Don't overlook the value of restrictive covenants
15 July 2011

Restrictive covenants proven to be vital for protecting business interests

The situation

Many employers would like to restrict the extent to which employees who have left the business can compete with them. This may be by trying to prevent them from working in the same geographical area or by preventing them from contacting customers for a certain period of time. This is often achieved by the use of restrictive covenant clauses in a contract of employment. However, such clauses are a restraint of trade and the court is therefore keen to narrow the extent to which they are enforceable whilst balancing the legitimate interests of the business.

In the recent case of Tim Russ & Co v Robertson [2011] the High Court considered the enforceability of various employment restrictive covenants against an estate agent.

The claim

The defendant, Robertson, was an estate agent who had worked for the claimant estate agency, Tim Russ & Co, in sales and negotiations for approximately 4 years. In January 2011 Robertson left to set up his own business a few miles away from the branch where he had worked. Russ & Co alleged that:

(1) The new business breached a clause in Robertson’s contract of employment which prevented him from setting up or working in a business within 5 miles of the branch where he worked (“the non-competition clause”) 

(2) Robertson had breached a confidential information clause in his contract 

(3) He had breached a non-solicitation clause in his contract by “poaching” another member of Russ & Co’s staff 

(4) He had contacted Russ & Co’s customers in breach of a non-solicitation clause in his contract.

Russ & Co applied to court seeking to enforce certain terms which it alleged formed part of the Robertson’s employment contract and for an injunction to try and prevent Robertson from using confidential information. The effect of the order that Russ & Co sought would have been to close down Robertson’s new business.

When Robertson’s initial probation period came to an end he negotiated a new pay package. He was given a new set of terms and conditions which were contained in an employee handbook as part of Russ & Co’s confirmation of his pay package. He did not sign and return them. He therefore argued that he was not bound by the terms and conditions. He claimed that in any event he had not breached the non-solicitation clause and the non-competition clause was too wide in its scope to be enforceable.

The result

The court found that the terms and conditions did apply. Although Robertson had not signed them Russ & Co’s communications to him required him to raise any queries or to sign his acceptance. He did neither. The court decided that objectively viewed his conduct meant he had accepted the new terms.

On his own evidence Robertson had approached Russ & Co’s clients. However, the court found that he had done so by taking and using his Outlook diary contact list when he left Russ & Co’s employment rather than by downloading or copying databases of letting clients, of people who had contacted the firm and of properties valued as alleged by Russ & Co. Nonetheless the court found this was sufficient to justify the imposition of an injunction restricting Robertson’s use of confidential information.

Robertson was found not to have breached the non-solicitation of employees clause. The court found that the employee in question had approached Robertson and not the other way round.

The setting up of the new business was, on the face of it, in breach of the non-competition clause. The court found that the geographical restriction of 5 miles was reasonable bearing in mind the nature of Russ & Co’s business. However, the court was of the opinion that the clause went beyond what was necessary to protect the legitimate interests of Russ & Co in terms of length of the period and the work covered. The legitimate interest which Russ & Co sought to protect was its customer goodwill from recurring business but on the evidence the court decided that most of Russ & Co’s work did not involve recurring business. The clause also covered the lettings side of the business which was an area in which Robertson had not worked at Russ & Co. The clause was found to be void and thus unenforceable.

In summary therefore the court allowed Robertson’s business to continue subject to an injunction to prevent his use of confidential information on the basis that Russ & Co’s business interests were adequately protected by the restrictions on use of confidential information and non-solicitation clauses.

Estate agents often work in relatively limited geographical areas. An ex-employee setting up a new business in the same town could therefore be hugely damaging. The misuse of confidential information is protected by law in any event but restrictive covenants in an employment contract can provide valuable further protection. However, as this case demonstrates it is essential to ensure that the clauses go no further than is required to protect legitimate business interests. If not, the clause risks being void and unenforceable and therefore worthless. A further point to note is that if you need to seek interim injunctive relief, such as that sought in this case, the court will require you to act expeditiously or it may not grant the relief sought. It is therefore important to seek legal advice at the earliest opportunity.

For more information about this case or to find out more about how the Dispute Resolution team can help you please contact Ally Tow on 0118 952 7206 or email [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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