The defendants, who had been employed by the claimant as independent financial advisers, covenanted that, for the year immediately following termination of their employment, they would not deal with any of the claimant’s clients with whom they had dealt in the preceding year; and that, if they had then dealt with agents of its clients, the agents should be deemed to be its clients for this purpose. The company sought to enforce restrictive covenants entered into by employees of its subsidiary. The employees said that the covenants did not benefit them.
Held: The court should take a realistic view of corporate identity in such situations. The covenants were enforceable. The deeming of agents as clients was unreasonable; that the covenant should be severed and the deeming provision removed; and that the remainder of the restraint should be enforced against the defendants.
Maurice Kay LJ observed a) that ‘[a]t one stage’ there had been an assumption in the authorities, such as the Mason case, that courts should be reluctant to sever a covenant in restraint of trade in favour of an employer;
(b) declared at paras 35-37 that the appropriate starting-point was what Lord Sterndale and Younger LJ had said in the Attwood case;
(c) noted at para 38 that in the T Lucas case, cited in para 69 above, the court had authoritatively rejected the second prerequisite of severance which Younger LJ had identified;
(d) addressed at para 40 the three criteria identified in the Sadler case and noted that it had been applied both in the Marshall case and in the TFS Derivatives case cited in para 41 above;
(e) rejected at paras 41 and 42 the suggestion that those three criteria applied only to claims by employees to post-employment commission and likened the third criterion to the reference in the T Lucas case to the availability of severance if achievable ‘without altering the nature of the contract’;
(f) suggested at para 43 that ‘the threefold test . . is a useful way of approaching these cases and should be adopted’; and
(g) concluded at para 44 that application of those three criteria rendered the deeming provision removable.
Judges:
Sir Anthony Clarke Mr Carnwath LJ , Maurice Kay LJ
Citations:
[2007] EWCA Civ 613, Times 11-Jul-2007, [2007] IRLR 793, [2007] ICR 1539
Links:
Jurisdiction:
England and Wales
Citing:
Appeal from – Beckett Investment Management Group Ltd. Beckett Financial Services Ltd. Beckett Asset Management Ltd and others v Hall and others QBD 16-Feb-2007
. .
Cited – Office Angels Ltd v Rainer-Thomas CA 1991
Reasonability Test of Post Employment Restriction
The court re-stated the principles applicable in testing whether an employee’s restrictive covenant was reasonable: ‘The court cannot say that a covenant in one form affords no more than adequate protection to a covenantee’s relevant legitimate . .
Cited by:
Cited – Tillman v Egon Zehnder Ltd SC 3-Jul-2019
The company appealed from rejection of its contention that its former employee should be restrained from employment by a competitor under a clause in her former employment contract. . .
Lists of cited by and citing cases may be incomplete.
Company, Employment
Updated: 10 April 2022; Ref: scu.253739