A High Court case illustrates that it is not always in an employer’s best interests to immediately place an employee on garden leave, or seek injunctive relief against a departing employee when they leave to set up in competition. Although seeking an injunction is often the knee-jerk reaction of an employer in such cases, it may not be the best option where there is little that they can do in reality to prevent a loyal client base following the employee.
The court held that a 12-month non-competition post-termination restrictive covenant in an agreement between a financial adviser and his employer was enforceable. Under a “goodwill agreement”, the financial adviser had been paid for the goodwill in the client base he brought with him to the firm, but was prevented from working in any capacity in competition with his employer for 12 months after his employment terminated. The court held that the non-competition restriction was enforceable because the goodwill agreement was akin to a business sale agreement into which the parties had entered with equal bargaining power.
A checklist is available that explains what restrictive covenants are, when they are likely to be enforceable and how they can be used in employment contracts to protect a business’s interests.
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