UK News

Court highlights shortcomings of non-solicitation clauses

February 2012

The limitation of post-employment non-solicitation restrictions on departing employees are highlighted by the High Court’s decision.

Background

The case involved Towry Law, (a financial services company). A number of employees, including a Mr Bennett, left Towry Law following the acquisition of another company and went to work for a competitor. A large number of clients then made requests to Towry Law to transfer their business to Mr Bennett’s new employer.

Mr Bennett’s contract of employment contained a non-solicitation clause which prohibited him from soliciting the business of clients of Towry Law for a period after leaving the company. The question which arose was what constitutes “solicitation”?

It was held by the court that, to establish solicitation, one must demonstrate the existence of persuasion. In this case that where the client was exercising an independent decision to transfer, without any evidence of encouragement or persuasion to do so by Mr Bennett, it could not be said that solicitation had occurred and the burden of proof of showing that it had fell on the employer.

Commentary

Had Mr Bennett’s employment contract contained a non-dealing clause (which it did not) then his conduct might well have been unlawful.

The case highlights the importance to employers of including a non-dealing clause in addition to a non-solicitation clause to give maximum protection of client connections. Where the nature of the relationship between the client and the departing employee is particularly personal there can still be problems in enforcing as a court may take the view that a client ought not to be deprived of the services of a professional that it values and trusts and where it has no other connection with the former employer. This case shows the problems that can arise in obtaining clear evidence of solicitation. It will not be enough for the former employer to rely on circumstantial evidence to persuade a court that solicitation must have taken place.

Resources

Towry EJ Ltd v Bennett and others

For further information or to discuss the issues raised, please contact David Widdowson or Stephen Wright on +44 20 3051 5711.