The reasonableness of a restrictive covenant was recently considered in the High Court case of Romero Insurance Brokers Ltd v Templeton & Anor  EWHC 1198.
Mr Templeton was a senior insurance broker with Romero. He resigned and went to work for a competitor. A number of clients followed. Romero pointed to a restrictive covenant in Mr Templeton’s contract of employment, levying a 12-month ban (beginning on termination of the contract) on him seeking to procure orders from or doing business with clients with whom he had dealt when working with Romero over the past six months. Romero sought an injunction for the remainder of the restricted period and damages for breach of the restriction. Mr Templeton’s new employer was joined as a defendant for inducing the breaches.
It was held that the 12-month restriction was reasonable in the circumstances. Insurance policies are normally renewed annually and so the restrictive covenant gave Romero enough protection to cover the period which would ordinarily see clients most likely to change brokers. It did not matter that the restriction related to those clients with whom Mr Templeton had dealt during the last six (rather than 12) months of his employment. The court noted that a longer restriction would not have been enforceable.
Impact for Employers
This case serves as a reminder that employers should act with caution when drafting restrictive covenants, ensuring that they are long enough to protect their professional interest – but not so long as to potentially be considered unreasonable. As the High Court said in this case, “if the restraint is greater than is reasonably necessary to protect the trade connection, it will not be enforced”. In considering the length of the restriction, the relevant factor is the time needed for the employer to build a connection between the clients looked after by the former employee and his replacement. A 12 month restriction was enforceable in this case due to the nature of the industry, but in many cases 12 months will be too long, except for very senior employees. This case is also helpful for employers because the court upheld the non-dealing aspect of the restriction which prevented Mr Templeton from doing business with former clients (in addition to the non-solicitation aspect).