UK High Court Enforces 12 month Restrictive Covenant Clause

In the recent UK case of Romero Insurance Brokers v Templeton [2013] EWHC 1198 (QB) the UK High Court was asked to consider a number of questions including the enforceability of a 12 month restrictive covenant. A copy to the decision is found here.BackgroundThe defendant in this case, Mr Templeton commenced employment with the claimant on 1st December 2011 as a manager of a small office which was due to be opened the following February in Halifax. The defendant ultimately resigned from his employment on 8th December 2012 due a number of reasons including a reduction in salary. The following day, on 9th October 2012, the defendant commenced employment with Eastwood & Partners Limited and it was hoped that the defendant would bring a substantial number of ex Romero clients to Eastwood which it appeared he succeeded in doing. On 13th November 2012 the claimant issued proceedings against Mr Templeton and sought an interim injunction to enforce a twelve month restrictive covenant. The claimant also joined Eastwood & Partners Limited to the proceedings on the basis that they had induced Mr Templeton to breach his restrictive covenant.Key Questions1) Did the claimant’s conduct amounted to a constructive dismissal of the defendant i.e. did it amount to a repudiation of his contract of employment which he could accept by resigning?(2) Did the defendant remove any documents containing confidential information from the claimant and use the information in the course of Eastwood’s business?(3) Was the 12 month covenant (in a separate agreement with the claimant) prohibiting the procuring of orders from entities who had in the 6 months prior to the termination of the defendant’s contract done business with or been a client of the claimant and with whom the defendant had dealings enforceable?(4) Should the claimant be granted any relief by way of injunction?For the purposes of this post, we have referred to question three only and we recommend that our readers take time to read the full decision in this regard.Restrictive CovenantOn 1st December 2011, the defendant entered an agreement with the claimant, which contained a number of covenants including:”The Employee will not for the period of 12 months immediately following the termination of his employment without the prior consent of the Board in connection with the carrying on of any business similar to or in competition with the business of Insurance Brokers/Services on his own behalf or on behalf of any person firm or company directly or indirectly seek to procure orders from or do business with any person firm or company who has at any time in the 6 months immediately preceding such termination done business with or been a customer or client of the Company or any Subsidiaries or Associated Companies and with whom the Employee has had dealings or……… “The Court noted that it was for the claimant to establish that the covenant was reasonable in the interests of the parties and in the interests of the public. Equally the claimant must show a ‘protectable interest‘ which the court noted was often the employer’s trade connection with customers with whom the employee was dealing. The key question therefore arose as to whether the period of twelve months was more than was reasonably necessary to protect the claimant’s business connection with its clients with whom the defendant was dealing. The Court referred to the decision of Stenhouse Australia Ltd v Phillips [1974] AC 391 at 402 whereby Lord Wilberforce stated:”The question is not how long the employee could be expected to enjoy, by virtue of his employment, a competitive edge over others seeking the clients’ business. It is, rather, what is a reasonable time during which the employer is entitled to protection against solicitation of clients with whom the employee had contact and influence during employment and were not bound to the employer by contract or by stability of association. This question, secondly, their Lordships do not consider can advantageously form the subject of direct evidence. It is for the judge after informing himself as fully as he can of the facts and circumstances relating to the employer’s business, the nature of the employer’s interest to be protected, and the likely effect on this of solicitation, to decide whether the contractual period is reasonable or not.”The Court observed that “……..12 months is a period which is common in the insurance broking business in contracts with broker employees……”. The defendant had also been advised that he take legal advice as to the enforceability of the restrictive covenant which he did and he was advised that if he intended to break the clause that he should first seek an indemnity from the claimant however the defendant observed the restrictive covenant,It was observed that the legitimate purposes of the covenant were to “give time to Romero to build a connection between clients looked after by Mr Templeton and his replacement, and to diminish by the passage of time the strength of the connection between Mr Templeton and the client“. The Court also observed that the fact that insurances often last for 12 months was relevant and referred to the case of Hickinbottom J in Lonmar Global Risks Ltd v West [2010] EWHC 2878 (QB).The High Court concluded that “….it was reasonable for Romero to seek to protect their client connection with a 12 month restriction against solicitation by Mr Templeton in the way Romero did. The clause is enforceable. It also considered that an injunction was appropriate to cover the rest of the 12 months. It was also determined that the claimant was entitled to damages for breaches by the defendant of the covenant occurring between his leaving the claimant’s employment and this judgment.In conclusion it is interesting to note that the court considered the renewal of the insurance contract on an annual basis as important in determining how long a period should be to protect a trade connection. It noted that most insurance contracts are renewed on an annual basis only and therefore a twelve month restrictive covenant clause was not unreasonable.Although a UK decision, it could be relevant to the insurance industry here and is certainly worth noting!!