Restrictive Employment Covenants Must Be ‘Reasonable’

In declaring unenforceable a restrictive covenant contained in a senior financial adviser’s employment contract, the High Court has emphasised that such clauses are not worth the paper they are written on if they impinge unnecessarily on the liberty of former employees or amount to an unreasonable restraint of trade (Ashcourt Rowan Financial Planning Limited v Hall).



A company which provides financial advice to corporate and high net worth clients had sought to enforce a restrictive covenant after one of its advisers resigned and took employment with a direct competitor. The covenant purported to restrict the employee, amongst other things, from directly or indirectly being engaged or concerned in a competing business for six months after his departure.



The company asserted that certain of its best clients had moved with the adviser to his new employer and that several other members of its staff had also resigned and joined him in his new role. It was submitted that the covenant was no wider than was necessary to protect the company’s legitimate commercial interests.



However, in dismissing the company’s claim, the Court underlined that, as a matter of public policy, such clauses are unenforceable if they go beyond what is reasonable between the parties or place restraints on trade that are ‘injurious to the public interest’.



Whilst recognising the company’s right to maintain the confidentiality of its client information and to place restrictions on employees for the benefit of the business generally, the Court noted that the particular covenant purported, for a six-month period, to restrict the adviser from employment anywhere in the UK, or beyond, in a field in which he had worked for many years.



Ruling that the scope of the covenant was broader than required to protect the company’s legitimate interests, the Court also noted that it purported to restrict the adviser from even indirect involvement with competitors, regardless of whether his role would in fact bring him into competition with his former employer.