Huw Thomas was the managing director of
insurance broker Farr, a company which arranged insurance for
social housing projects. When the company was restructured he
resigned, saying that the placing of Farr into the care of another
subsidiary of its parent company represented a demotion and could
lead to a loss of earnings.
Thomas accepted an offer of employment from a
new entrant into the market for social housing insurance. He then
sued Farr for constructive dismissal, breach of contract and a
declaration that the non-compete clause in his contract was an
unreasonable restraint on trade.
In a case that only dealt with the non-compete
clause, the Court of Appeal upheld the High Court's ruling that
Farr was entitled to put the clause in its contract.
Thomas argued that Farr was entitled to
protect itself, but that other clauses in his contract which he did
not dispute already provided enough protection. He was contracted
not to solicit business from Farr customers, and was contracted not
to disclose any confidential information belonging to Farr to the
company's detriment.
Thomas argued that these clauses protected the
company against any harm that could come to them by his employment
elsewhere. He also said that the terms of the non-compete clause
were too wide and that the restricted period of 12 months should
only have been six months.
Appeal court judge Lord Justice Toulson said
that the non-solicit clause would only stop Thomas from approaching
Farr's clients. If he were to hold a similarly senior position in
the new company, though, those approaches were likely to be made by
more junior staff. The non-compete clause was necessary for that
not to be done on the basis of Thomas's knowledge of Farr, he
said.
The court also found that the 12-month period
was a reasonable estimate of the period for which confidential
information would be valuable, and so was appropriate. It also
found that the terms of the restriction were appropriate because
while they banned Thomas's acting in the social housing insurance
broker market they did permit his working in other insurance broker
markets.
Though the case will be welcomed by employers,
experts have warned that these types of decisions are very
specific, and that companies should be wary of extrapolating too
widely from them.
"This result is good news for employers," said
Ben Doherty, an employment specialist with Pinsent Masons, the law
firm behind OUT-LAW.COM. "But it doesn't follow that all 12-month
restrictive covenants will stand up in court as each case will be
decided on its own facts."
"Non-solicitation and non-compete
clauses must be written into employment contracts with great care.
The employer should ensure that it has a legitimate business
interest which it is appropriate to protect and that the protection
included in the contract is no more than reasonable having regard
to the interests of the parties and the public interest."
The appeal was dismissed.
