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To what extent are post-termination restrictions laid out in employment contracts enforceable?
In Quilter Private Client Advisers Ltd v Falconer and another the High Court considered the enforceability of post-termination restrictions in an employee’s contract.
Ms Falconer was employed by Quilter as a financial adviser under an employment contract which contained various restrictions on what she could do in the 9 to 12 months after her employment with Quilter ended. Her job involved taking over an existing book of clients.
Six months after her employment with Quilter started, Ms Falconer decided to leave and start a new job with Continuum. At the time, Ms Falconer was still in her probationary period with Quilter, so she only needed to give two weeks’ notice. Quilter put Ms Falconer on garden leave for this period.
Quilter argued that Ms Falconer had breached her contract and sought an interim injunction to enforce her restrictive covenants. Quilter also brought a claim against Continuum for inducing Ms Falconer to breach her contract.
An interim injunction was granted against Ms Falconer, and a full trial followed.
Ms Falconer was found to have breached her contract. For example, she had not shown Continuum her Quilter employment contract which contained the restrictive covenants (in breach of an express clause in her contract), and she had contacted Quilter clients while she was on garden leave without Quilter’s permission.
As for the restrictive covenants in Ms Falconer’s contract, the High Court found them to be invalid under the doctrine of restraint of trade.
One of these covenants was a clause which sought to prevent Ms Falconer from competing with Quilter for nine months after her employment ended. The Court noted that the 9-month restriction applied regardless of how long Ms Falconer had worked for Quilter and found this to be unreasonable. It explained that “the threat of a departing employee requires less protection if she has had less of an opportunity to build [a] relationship with the clients”.
The Court also thought the clause went further than necessary to protect Quilter’s legitimate business interest in its connections with clients and their confidential information, because it tried to prevent Ms Falconer from competing with Quilter for the business of prospective customers who had never been Quilter clients.
Interestingly, the Court also compared Ms Falconer’s contract to the Head of Quilter, who, whilst having access to more confidential information, was only restricted for six months after his employment ended.
Ultimately, the Court found that Quilter could have protected its interests by having suitably worded non-dealing restrictions (clauses which require the employee not to provide services or goods to prescribed persons like customers).
Ms Falconer’s contract with Quilter also contained restrictions on her providing financial services to, or soliciting, customers who had been Quilter clients in the 18 months before her employment ended, and with whom she had material personal contact or had been materially concerned.
Quilter was not able to offer any justification for the non-solicitation and non-dealing clauses in Ms Falconer’s contract, so the Court held that these clauses went further than necessary. The Court found that the 18-month backstop of these clauses, combined with the lengthy 12-month period they applied for, was excessive for a junior employee.
This case stresses the importance of businesses giving proper thought to the suitability of post-termination restrictions contained in an employee’s employment contract, for that employee’s role and status.