Post-employment restrictive covenants are a useful tool for employers who are concerned that exiting employees may misuse their knowledge of clients to further another business’s interests. However, the recent High Court decision in Quilter Private Client Advisers Ltd v Falconer and another highlights the difficulties employers can face when seeking to enforce them.
Ms Falconer had been employed by Quilter for a matter of months before she served notice to terminate her employment. As she was still in her probationary period, she was only required to give 2 weeks’ notice, however Ms Falconer was subject to the following covenants:
• A non-compete covenant for 9 months following termination, preventing her from working with a competitor;
• Non-solicitation and non-dealing covenants for 12 months following termination, preventing her from soliciting or dealing with Quilter’s clients.
The contract defined clients as those individuals with whom Ms Falconer had materially dealt with in the 12 months preceding the termination date and who had been clients of Quilter in the 18 months prior to her termination.
The High Court determined that these restrictive covenants were unenforceable. In reaching this decision, the High Court considered the reality of the threat Ms Falconer could pose to Quilter’s business, and the duration of restrictive covenants in the contracts of more senior staff.
In particular the Court noted that Ms Falconer’s non-compete covenant was 3 months longer than that which applied to more senior employees and considered that the requirement to only give 2 weeks’ notice suggested the company did not see her services as being so important as to merit restrictions of this kind during the initial stage of her employment. Finally, the Court could not accept that the backstop of 18 months in Quilter’s definition of client was necessary to protect its legitimate business interests, most notably Quilter was unable to adequately explain to the Court why it felt it was justified.
Considerations for employers
The decision demonstrates the importance of careful consideration and drafting to ensure post-employment restrictions only cover that which is absolutely necessary to protect an employer’s legitimate interests. In particular, employers need to make a realistic assessment of an employee’s access to confidential or sensitive information and their ability to build strong client relationships. A junior employee with only limited contact with clients is less likely to build a relationship strong enough to threaten their employer’s interests than an employee who oversees the provision of services to a client and has regular contact with them – any post-employment restrictions should therefore reflect this difference status.
If you would like support introducing or amending restrictive covenants in your contracts of employment or need advice on enforcing them, please contact us.