12 month non-solicitation provision held enforceable

12 month non-solicitation provision held enforceable


The High Court in Romero Insurance Brokers Limited v Templeton has recently held that a 12 month non-solicitation of clients restriction is enforceable.

Mr Templeton joined Romero from a competitor insurance broker. His role was to set up and manage its new office in Halifax. On leaving his previous employer he was subject to a restrictive covenant which prevented him approaching his former clients for 12 months. His new contract with Romero contained a similar restriction. He had acquired a substantial following as a broker in Halifax. A major aim of his employment by Romero was that he should persuade many of his former clients to join him at Romero. However, after nine months of having Mr Templeton in its employment, Romero was unhappy with his performance in building up its Halifax business. Following a meeting, Mr Templeton agreed to a reduction in his salary which might be reversed should turnover increase. Despite this, following a review of the financial position of the business, two months later Romero decided it no longer needed a manager in the Halifax office. It therefore decided it needed to consult with Mr Templeton about potentially making his role redundant and he was consequently called to a consultation meeting.

Although the judge subsequently found the consultation meeting to be part of a genuine consultation process, Mr Templeton saw the process as a fait accompli and begun asking questions about negotiating redundancy packages. He also asked about whether the company would consider selling the book of his business. Romero agreed to consider offers for the book, but unfortunately the offer that Mr Templeton was able to obtain from what in fact became his new employer, Eastwood, was considered too low for Romero and it was rejected.

In the meantime, Mr Templeton was asked not to come into the office or contact his clients and his clients were told he was not contactable. However, the company continued to stress to Mr Templeton that no decisions had been made and the consultation process was on-going.

A few days later, Mr Templeton’s lawyers wrote to Romero stating that as Romero had reduced Mr Templeton’s salary on the basis that he would be continuing with the company, the proposed termination of his employment two months later meant that Mr Templeton could no longer have trust or confidence in Romero. It said that the termination was pre-ordained and the consultation was a sham and that there was no reason or right to suspend Mr Templeton or require that he should not contact clients. He therefore claimed constructive dismissal and argued the 12 month non-solicitation of clients restrictive covenant in his contract with Romero was unenforceable. He therefore joined Eastwood a couple of days later and began soliciting his clients from Romero.

Romero sued for damages for breach of contract and an injunction for the remainder of the 12 month period to prevent Mr Templeton from continuing to solicit its clients. Following a speedy trial, the judge granted it both.

There are a few key take away points from this case. Firstly, the judge was completely unsympathetic to the argument that Mr Templeton, who had been trying to orchestrate the purchase of his business just a few days earlier, had been constructively dismissed. There have been various similar cases in the last few years where an employee is clearly trying to set up a constructive dismissal claim to get out of their post-termination restrictions and this has repeatedly been given short shrift. Indeed, it is clear that such action can not only be unsuccessful, but potentially damaging in that it has the clear effect of making the judge think the employee’s behaviour has been “dubious” and this can cast a shadow over the employee more generally. It is therefore often a tactical error to try to “create” a poor constructive dismissal claim in these circumstances.

The judge also explained some of the reasons why he considered this 12 month restriction to be enforceable in this case. Firstly, such a length of covenant was industry standard as exemplified by Mr Templeton’s covenants in his previous employment contract and his new contract with Eastwood. Secondly, the fact that insurance policies often last for 12 months was relevant when considering the appropriate length of the covenant. Therefore although this case provides some support for 12 month non-solicitation covenants the context of the judgment, in particular the specific industry and its practice, forms the fundamental basis for the decision.