Employee competition and confidentiality

Non-competition, non-solicitation and non-dealing clauses invalid but other contractual breaches found.

The case of Quilter Private Client Advisers v Falconer [2020] EWHC 3294 (QB) concerned claims by the claimant (Quilter), the former employer of the first defendant (EF), an FCA regulated financial services adviser, that she was in breach of contract in working in the same role for the second defendant (Continuum) which was acknowledged to be a competitor. EF was only employed by Quilter from January until July 2019 during which time she was on a probationary period. The High Court held that each of a non-competition clause, a non-solicitation clause, and a non-dealing clause in the contract of employment of EF was an invalid restraint of trade and unenforceable. Accordingly, the claims by Quilter that she was in breach of those restrictive covenants were dismissed.

The central issue between the parties on the nine month non-competition clause was whether Quilter had shown, on the evidence, that it was no wider than was reasonably necessary for the protection of its legitimate business interests. The High Court held that it had not done so and relevant factors included:

• the restrictions applied irrespective of the length of time that EF had in fact been employed by Quilter. It was unreasonable for her to be prevented from being employed by a competitor for nine months when she might have been in employment with Quilter for just two weeks
• the fact that EF’s employment was subject to a six month period of probation made it foreseeable that her employment might be terminated during the probation period after having been employed for only a short period of time and yet she would still be subject to a nine month non-competition restriction, despite the fact that she would only have had time to build a very short-term relationship with any clients in that period
• the shorter the period of notice the less important to the company the employee’s services would appear to be and the more lowly their position is likely to be. It follows that the perceived need for protection is diminished
• while it was legitimate for Quilter to seek to protect its customers and its confidential customer information, it was not legitimate for it to seek to prevent competition from its former customer advisers per se
• Mr. Moore, who was Head of Quilter and who had access to far more confidential information about the business than EF, was himself subject to much less onerous covenants than EF (six months compared to her nine months). Also the Regional Financial Planning Director had nine month restrictions as well indicating that Quilter had taken a ‘one size fits all’ approach to senior employees and nobody appeared to have given any thought to the suitability of the restrictive covenants for an employee of EF’s status
• the legitimate business interests of Quilter could be protected by an appropriately worded non-dealing covenant relating to its customers; whereas the non-competition covenant prevented EF from doing business with new clients who had nothing to do with Quilter
• the evidence suggested that non-competition covenants for employees such as EF were not industry standard. They were unusual and not reasonably necessary
• the fact that when Quilter learned of EF’s engagement by Continuum by early August 2019 it did not seek injunctive relief for some 4 1/2 months also suggested that a non-competition covenant was not necessary to protect Quilter’s legitimate business interests

However, the High Court held that EF was in breach of certain other clauses in her contract of employment, including the one headed ‘The Role’, and the ‘conflict of business interest’ clause. The court further ruled that EF had breached her duty of fidelity as well as the duty of trust and confidence which she had owed to the claimant, in scanning their client documentation on to her personal laptop. The court also held, among other things, that EF had breached an equitable obligation of confidence that she had owed to the claimant in misusing its confidential information. The claim against Continuum was dismissed on the facts.

Pro Employment Law

Formed in 2017, following significant legislative changes designed to increase competition within the legal services marketplace, Pro Employment Law is a progressive set of barristers’ chambers, consisting only of experienced employment law barristers, offering a full range of specialist advisory, case management, and advocacy services directly to the public through the Public Access scheme. We supply our legal services exclusively in the area of Employment Law to clients located across England & Wales. All of the legal services we supply are covered by professional indemnity insurance with Bar Mutual.