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Original poster

City Lawyers - Restrictive Covenant advice - please hlep

23 replies

lisalisa · 29/11/2007 14:56

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mamasin · 29/11/2007 15:06

God! I have no idea but am bumping for you...
Sorry I can't help - anyone?

Original poster
lisalisa · 29/11/2007 15:21

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karen999 · 29/11/2007 15:28

So it really comes down to whether the covenant is reasonable or not? The time limit is 12 months, which does not seem that long but if you are saying that it is in terms of industry standards then it could well be

I am quoting from Selwyns Law of Employment here..."an employer is entitled to have limited protection against an ex employee dealing with exisiting customers, for this is part of the goodwill which has been built up over the years. A covenant can restrict the right to solicit or endeavour to entice away former customers, or to have post-employment dealing with such customers, but it is likely that such clauses be limited to those customers with whom the ex employee had some dealings."

You obviously have had dealings with the client in question although at the end of the day a client cannot be forced to do business with someone.

I am having a look through some case law at the moment and will get back to you.....I have a feeling that nowadays it is perhaps more hassle for employers to try and enforce these covenants...

flowerybeanbag · 29/11/2007 16:01

I just had a chat with DH who is a City Lawyer for his thoughts. Firstly these covenant's are often non-solicitation clauses so if they approach you that would be ok, so have a look at the wording.

Second thing he said was these covenants are restricting trade so they can't be any longer than strictly necessary to protect a relevant commercial interest - 12 months sounds long. Your employers would have to bring an injunction against you. If the court felt 12 months is considered unreasonable in terms of scope, the court wouldn't reduce it to 6 months or whatever, the whole clause would fall away.

Taking the risk that a court would feel the 12 months is not justified might be your best bet, but see what Karen says about case law as well, that will be interesting.

Original poster
lisalisa · 29/11/2007 16:05

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flowerybeanbag · 29/11/2007 16:08

Hi lisalisa - impression I got from DH is that they could get an injunction to stop you doing it, or possibly get an attachment to the fee (like the 10% you mentioned). My question to him was if you pursued this what could they actually do. I don't think you could be personally liable for damages. Will ask him that exact question to be sure though, or Karen may know.

karen999 · 29/11/2007 16:19

The prime remedy for the employer is to seek is to seek an injunction restraining the breach.

If the employer can show that he has suffered damage as a result of the breach, he may bring an action. The amont of damages awarded will be such as to the put the claimant in the position he would have been in had the contract been performed. SBJ Stephenson Ltd v Mandy - the defendant signed a RC preventing him from disclosing confidential info, engaging in competitive activities and soliciitng staff of the employer for a period of 12 months....he resigned and broke the RC....emplyers were successful in obtaining an injunction and were subsequently awarded substantial damages in respect of loss of income from former clients and for future loss.

karen999 · 29/11/2007 16:23

Am looking into 'reasonableness of RC's' and will come back yo you later if that's ok....have to feed the kids!!

flowerybeanbag · 29/11/2007 17:04

More thoughts from DH. Yes you could be personally liable but difficult to prove the client wouldn't have gone elsewhere anyway, and also you won't have personally directly profited, so those things could help.

mintydixcharrington · 29/11/2007 17:15

also I think the point about whether you have solicited the client is the main issue, as yuo say nobody can force the client to use the old firm going forward

I think you need to phone up someone (simmons has the best employment dept) and get a bit of advice on this, it is a very specific area.

I also think the fact that the client has made it clear to you that it has no intention of using your old firm is very relevant - because then what are the old firms damages? It won't have lost fee income because you have taken the new client on at the new firm, it will have lost fee income because you have left the old firm full stop. It is arguable anyway. It might be helpful if the client basically sacked the old firm - told them that it didn't appreciate being told who it could and couldn't use and would not be using the old firm at all in the future - but obviously it would have to do this under its own steam, you couldnt put them up to it.

But I think a quick phone call to someone in simmons employment dept (or equivalent) would be useful. You must know someone who knows someone who is a shitkicking employment lawyer who'd give you half an hour chat on this?

mollymawk · 29/11/2007 20:29

I'm not a lawyer so can't comment on the legalities of all this but if I were the client I would be really really hacked off with the Senior Partner and do all I could not to use his firm!

flowerybeanbag · 29/11/2007 20:56

lisalisa DH is home and sitting here with me, he wanted to have a read, here he is....

MrFlowery:

(How can I have any credibility with a name like that?! ) Anyway, if the client has contacted the senior partner of your present firm and announced he wants to take his business to your new firm, he is perfectly within his rights to do that. As you well know, freedom of contract is a key feature of English law. I cannot imagine that your present firm would even try to prevent its clients from going where they want (or indeed that a client would ever agree to such terms)?!

As far as your restrictive covenant is concerned, I am assuming that it prevents you from soliciting clients from your present firm for a limited period of time. Soliciting would require you to actively seek your client's business at your new firm. I assume from your original post that this is not the case: you have clearly not solicited this work - the work is moving with you. If your restrictive covenant is any wider than that, it is unlikely to be upheld in a court of law.

In reality I suspect your senior partner realises what a loss to his firm you (and your clients business) will be and is simply trying it on. I have to add that if this is the standard of advice from your present firm, you (and your client) are better off elsewhere.

Flowery again:

Hope that was useful lisalisa. Obviously my lovely DH (he's reading over my shoulder ) is v knowledgeable and experienced, however he is not an employment lawyer, and obviously hasn't seen the wording of your covenant. I think it would also be a good idea to do what minty says - someone you know will know a good employment lawyer who will have a look at it for you I would think.

Original poster
lisalisa · 29/11/2007 22:40

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Pollyanna · 29/11/2007 22:43

lisalisa, my dh was in a similar position, and his firm were going to enforce the covenant when the client voluntarily followed him. I think dh has been able to do small bits of work for the client, but is waiting for the time period to expire before doing any higher value pieces. It is a silly situation as all concerned know that the client is going to instruct dh as soon as he can, having said that, dh (and his new firm) didn't want to risk being sued.

Original poster
lisalisa · 29/11/2007 22:52

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Pollyanna · 29/11/2007 23:04

I think it depends on the firm though, the firm that dh left had a particularly vindictive, power mad senior partner, and also had a few financial worries...

Pollyanna · 29/11/2007 23:05

no, the client would be good one for dh to have at his new firm, but not particularly large for the old firm - the senior partner is just a thoroughly unpleasant man.

Original poster
lisalisa · 29/11/2007 23:11

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RibenaBerry · 03/12/2007 13:07

Not trying to be negative, but I wouldn't get too bullish about the length of the restriction being a problem. The courts are going through a fairly relaxed patch on restrictions lately and regularly enforce 12 month restrictions.

I think that you need to be more tactical. The client wants to go to your new firm, yes? Is there anyone else at your new firm who could deal with them for the next year? It is you that is restricted, not the firm,obviously. Is there any way you could get the client on side to say, "well I'm moving my business to X firm anyway. I don't know if your restrictions work, but if Lisa can't deal with me for 12 months I'll wait. Either way you'll lose the business so you might as well release the restriction." Obviously, that takes a v strong client relationship, but it sounds like you might just have one...

Piggy · 03/12/2007 13:15

Your soon-to-be old firm can't stop your client instructing whomsoever he chooses. Obviously you can't solicit him but he can come to you at your new firm. Your old firm have no monopoly over him and should remember that it's hardly good practice to be seen to be fighting over clients.

My advice would be to be careful and follow the letter of your contract for now. In order to smooth things over perhaps your client might think it politic to instruct your old firm for a couple of months and then if (when) he's dissatisfied with your replacement then he should instruct your firm.

RibenaBerry · 03/12/2007 13:50

Piggy- that's not necessarily true. If there is only a non-solicitation clause then you are right. If there is also a non-dealing clause, then although they could come to the firm they could not deal with Lisa (assuming clause enforceable, etc, etc). Sorry if I've missed something from the OP saying that there is no non dealing clause.

Original poster
lisalisa · 03/12/2007 14:18

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Piggy · 03/12/2007 16:39

Looks like you might have to bide your time.

Mind you, when dh left his old firm (huge firm of accountants - dh was a v senior partner) 75% of his clients followed him. His old firm were remarkably cool about it because he was (is) a market leader in his field. They did take legal advice but decided that the badwill they would create and damage to their reputation would be too great.

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