In a case earlier this year, the High Court has upheld a 12 month non-solicitation restrictive covenant in a senior insurance broker’s contract of employment.
The broker, Mr Templeton, had been hired by Romero Insurance Brokers Ltd in 2011. Romero wanted to grow its business and it was known to them that Mr Templeton had built up a loyal client base throughout his career and it was hoped that he would bring his clients with him. Accordingly, Mr Templeton entered into an agreement which contained a number of restrictive covenants, including a non-solicitation restriction that would prevent him from engaging with any clients that had been involved with Romero for the 6 months preceding the termination of employment. This non-solicitation restriction was to be effective for a period of 12 months following termination.
Unfortunately, Romero did not feel that Mr Templeton had been successful in building up the business and in August 2012 Mr Templeton reluctantly agreed to take a salary cut. In September 2012, Romero proposed that Mr Templeton be relocated to the company’s main office in Leeds to concentrate on business development. Thereafter it was suggested to Mr Templeton that this restructuring could result in his role being made redundant. Mr Templeton was invited to a redundancy consultation meeting. There was no mention of alternative employment being offered and Mr Templeton took the view that the consultation was a sham and that the redundancy had been pre-determined. Mr Templeton therefore refused to engage in the consultation process and so at the end of the meeting he was told not to come into work or contact any clients of the company.
Mr Templeton was emailed on 2 October 2012 by the Managing Director, to explain that his redundancy was not a fait accompli. Nevertheless, a few days later, Mr Templeton resigned with immediate effect claiming that he had lost trust and confidence following the company’s actions from August 2012 onwards and that these happenings had amounted to a breach of contract and contended that he had been constructively dismissed. Among the argued breaches of contract was the reduction in his salary and the decision by Romero to suspend him from work during the consultation period. One day after resigning, Mr Templeton commenced employment with Eastwood and Partners Ltd and a large number of his existing clients went with him.
The High Court concluded that Romero had genuinely tried to engage Mr Templeton in a consultation process and it was therefore not a sham. Romero’s Managing Director had intended to discuss a possible transfer to the Leeds office but had not had the opportunity to do so due to Mr Templeton refusing to engage in the process and then resigning during it. Mr Templeton’s alleged breaches of contract were not upheld and therefore it followed that he had not been constructively dismissed.
The court then went on to look at the enforceability of the restrictive covenants contained within his contract. It was held that Romero had legitimate interests to protect in terms of the trade connection with the clients Mr Templeton had been dealing with. In this case the 12 month restriction was held to be reasonable as it tended to be the norm in the insurance industry for policies to be renewed annually. It was established that Mr Templeton had taken legal advice on this in the past. The court considered that a covenant of such duration would allow Romero sufficient time to build a connection between clients that had formerly been managed by Mr Templeton to protect their legitimate interests. As Mr Templeton had been employed to bring new clients into the company, it was foreseeable that on his exiting the company he could otherwise take them away with him. However, the court was keen to point out that any restrictions with a duration in excess of 12 months would not have been enforceable.