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Restrictive Employment Covenants Must Be ‘Reasonable’

In Ashcourt Rowan Financial Planning Limited v Hall, the High Court ruled that a restrictive covenant contained in the employment contract of a senior financial adviser was unenforceable.

Ashcourt Rowan Financial Planning Limited provides financial advice to corporate and high net worth clients. The company had sought to enforce the covenant after one of its advisers resigned and took employment with a direct competitor. The covenant purported to restrict the employee, amongst other things, from directly or indirectly being engaged or concerned in a competing business for 12 months after his departure.

The company claimed that the covenant was no wider than was necessary to protect its legitimate commercial interests. However, in dismissing this claim, the Court underlined that, as a matter of public policy, such clauses are unenforceable if they go beyond what is reasonable between the parties or place restraints on trade that are ‘injurious to the public interest’.

Whilst recognising the company’s right to maintain the confidentiality of its client information and to place restrictions on employees for the benefit of the business generally, the Court found that the scope of the covenant in this case was broader than was required to protect the company’s legitimate interests. Not only did it attempt, for a 12-month period, to restrict the adviser from employment anywhere in the UK, or beyond, in a field in which he had worked for many years, but it also attempted to restrict him from even indirect involvement with competitors, regardless of whether his role would in fact bring him into competition with his former employers.

We can advise you on drafting restrictive covenants that will both protect your legitimate business interests and also be viewed as a reasonable restriction with regard to the individual nature of your business.