Law By Design Ltd (“LBD”), a Manchester based employment law firm which largely works for NHS clients, recently won a High Court claim against a former director and shareholder, Saira Ali, when she attempted to leave the firm and join a direct competitor as Partner.
During the course of Ali’s employment with LBD, she had signed both a shareholder and a director’s service agreement, containing restrictive covenants. The particular covenants which were the subject of the High Court case were:
- A blanket non-competition clause in the service agreement which prohibited Ali from working for a competitor on business she had been involved with in LBD for 12 months after leaving LBD.
- A restrictive covenant in the shareholder agreement which, for a period of 12 months after she ceased to be a shareholder, prevented her from being “engaged, concerned or interested in, or assist, a business which competes, directly or indirectly, with a business of the Company (LBD)” in a territory LBD has worked in in the last 12 months. This clause effectively sought to prevent the Claimant working in England & Wales in relation to any business the firm was involved in. It is somewhat surprising that the restricted period in the shareholder agreement was equal in duration to that in the service agreement, as quite often a former shareholder will be restrained for a longer period of time than an executive director.
Such ’non-compete’ clauses are fairly common in employment contracts and are included by employer often with the intention to protect their goodwill, i.e. client connections and/or confidential information. Often these restrictions are found to be excessive, for example, by requiring the employee to refrain from joining or setting up a competing business for an unreasonably long period of time. Sometimes the territory within which they are prohibited from working will be considered too wide. In such cases, the employer will be unable to enforce the restriction and the employee will be at liberty to compete.
However, in this case the court found in favour of the employer LBD. LBD had, before proceeding, sought an undertaking that Ali would not only not solicit or deal with their NHS clients, which she agreed to, but also comply with the non-competition clause when she resigned, in relation to which she refused. In response LBD applied to the court for an injunction to restrain her from joining the competitor law firm. Ali had agreed with the competitor firm that at the end of her 6 month notice period she would join them. The evidence was that Ali had presented that firm with a business plan which stated she could “transition” NHS clients generating around £250,000 a year, which is about a third of LBD’s turnover, from LBD to Weightmans. The court rejected Ali’s assertion that her work was self- generated and further found that her work with NHS clients which was an integral part of the business she conducted for LBD, and was central to her receiving an offer of employment from Weightmans. Overall, the court found “in the clearest possible terms” Ali was intending to take LBD’s business to Weightmans.
The court found that the service agreement was drafted in way that allowed it to reach the clear conclusion that “this covenant extended no wider than was reasonably necessary” to protect LBD’s legitimate business interests. An injunction was granted and the service agreement restrictive covenant remains in force until November 2022.
We have extensive experience of drafting and enforcing restrictive covenants in the High Court and County Courts including cases such Mantis Surgical Limited v Elaine Tregenza & Another in which a 3 month world wide restriction was upheld in the High Court.
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