Restrictive covenants - 6 month unpaid and not allowed to for competitor enforceable?

[Matty1234]

Hi all. I'll try and make this short as it's a really uncommon contract set up.

I work at company X
I own my own ltd company MYCO
Every month MYCO invoices X for the services provided.

There is a side letter which apparently links MYCO to myself and the firm X

In the contract between MYCO and X, there is a 3-month notice to end the agreement between our two firms.

I handed in my notice at the beginning of Jan. X, as per the contract between X and MYCO have stated I must work until the 3 month notice expires (which I guess is fair enough even though I really hate it). On top of that, they are restricting me from working for ANY competitor in any capacity for an additional 6 months after that.

Essentially I have to sit out for 6 months unpaid whilst I wait for the restrictive covenant to expire.

The firm I am moving to will not let me join until the restrictive covenant expires - they do not want any litigation risks.

Am I totally stuck now? I have asked my current firm X if I can exit early and reduce the restrictive covenants but they are upset and said that they want to keep me out of the market - in their words exactly "We will fight you and not back down".

Is going to a lawyer and paying lots of money my only option at this stage?

[2222]

Ula

Are you planning to work for the new company in a personal capacity, or via MYCO?

Isn't there a practical issue here, namely that it doesn't matter whether the covenant is enforceable if any new employer walks away at mere mention of it.

[Matty1234]

Hi. I will be working for the new company in a personal capacity. The new company will wait, but effectively I will have to support my family (wife and 3 children) purely from savings. In addition, I will miss out working on an interesting project for 6-months.

Other than getting a release from company X, which I've tried three times now without success, is there anything else I can do?

I don't think the main covenant is enforceable as it's too wide and doesn't work to only protect X's legitimate business interest as I will not be doing the same work nor speak with their clients. X is restricting me from working for ANY company which is in a competing business.

When I get home I will post the relevant paragraphs from my contract.

[2222]

Sorry, I don't know. That's why I flagged Ula.

I suspect you are right about the covenant, but I'm not clear what you can do about it if new employers simply steer clear. Even if you get a court ruling that it is unenforceable, your existing employer can appeal and very likely drag it out (at great expense all round) for the six months.

[Matty1234]

I agree! My current firm is being vindictive. I rejected their attempts to make me stay and they seem to be taking it personally. If I can severe the relationship between me and MYCO, maybe then it might not apply.

[paulajayne]

Is the existing contract between the companies or is it Company X to you?

[Matty1234]

Hi. The existing contract is between MYCO and X. There is an additional side letter that links me personally to X via MYCO. So should anything happen to MYCO, the relationship between me personally and X still stands. Very convoluted right? Its why im having a tough time with it. I was thinking if i can severe my ties with MYCO, then I would be free from X

[ULA]

Are you employed by company x as an employee or do you just purely invoice them for services provided?
Are you responsible for your own tax and NI, provide your own equipment and can decide how the work is carried out?
What document does the 6 month restrictive covenant appear in?
What was the reason for the side letter?

Sorry about the questions just need some extra clarity which may help in me being able to give you a more detailed response.

[Matty1234]

Hi Ula and thanks for your reply. I can supply copies of the contract amd sideletter here but just don't know it's the usual thing to do. I'll answer your questions first though..

I provide a monthly invoice to company X from my company MYCO. I am not employed by X as an employee.

I'm responsible for my own tax and NI, however I use all their equipment and they decide how I carry out my work. In my opinion I should be an employee but they structure it like this to avoid them paying NI I guess.

The 6 month non compete appears in the contract between MYCO and company X.

The side letter is called a "commission sharing agreement". The letter it seems is an attempt to link me personally via MYCO to company X. Eg. One paragraph states
"I hereby agree that if I cease to be employed by MYCO or it ceases to exist, I shall observe and be bound by each of the terms of the agreement (the main contract) as if I were a party in placr of MYCO

I would like to think I'm reasonably intelligent but really this has confused me totally.

[ostell]

Look at the conditions:
1) cease to be employed by MYCO
2) it ceases to exist

Neither is true and therefore the rest of the sentence does not apply.

So if you are emplyd by the new company rather than as a contractor then there should be no problem.

[Matty1234]

Ula

Here is the full wording of the side letter sent from me personally to Company X

(Title) Commission Sharing Agreement

In consideration of Company X agreeing to enter into a Commission Sharing Agreement (Agreement) with MYCO (Broking Company) of today's date, a copy of which is attached to this letter, I hereby agree the following:

1 I warrant that the Broking Company is and shall at all times be entitled to enter into the Agreement and make available my service to Company X in accordance with the terms of the Agreement.

2 I agree that I shall procure that the Broking Company shall at all times duly observe and perform the obligations contained in the Agreement and I undertake to indemnify Company X on demand in respect of any loss, liability, costs (including reasonable legal costs), damages or expenses it may suffer as a result of any failure by the Broking Company to perform those obligations.

3 Notwithstanding paragraph 2, and without prejudice to any rights that Company X may have against the Broking Company, I agree that, if I cease to be employed by the Broking Company or the Broking Company ceases to exist or otherwise fails or is unable to duly observe and perform its obligations under the Agreement, I shall observe and be bound by each and all of the terms of the Agreement as if I were party in place of the Broking Company.

4 I undertake that I shall look solely to the Broking Company for all compensation for any services to be performed by me under the Agreement.

5 I undertake and agree with Company X that the terms of clause 4 (Undertakings) and clause 6 (Confidential information and Company X property) of the Agreement apply as if they are direct undertakings and agreements between us.

6 I undertake that no breach by the Broking Company of any obligations to me shall constitute or be deemed to constitute a breach by Company X under the Agreement. Accordingly, notwithstanding any such breach by the Broking Company, I undertake to fulfil all of my obligations under this letter and as envisaged by the Agreement if and for so long as Company X fulfils its obligations to the Broking Company.

Signed as a deed


Just to add....the big contract document between MYCO and Company X is called a Brokerage Services Agreement - does that make this side letter irrelevant and unlinked to the main contract?

Ps. I type out the above side letter as it was short. I need to find some software to turn the main contract in to text - far too long for me to write it manually.

[ULA]

You can PM the contract document between you and Co X if that helps

[Matty1234]

You can PM the contract document between you and Co X if that helps

Hi Ula - I will do that tonight, thank you!
In the meantime if you have any comments to make on my position it would be gratefully welcome.
I know I shouldn't worry and that the worst case scenario is that I cannot earn for 6 months, but it's just kicking my anxiety into overdrive.

[ULA]

I have some concerns as to whether you are in fact an employee of company X. However, that aside given the situation we need to be looking at what the contractual arrangement is between your company MYCO and Company x. On that basis I really need to see the contract.

Who drafted the contract was it MYCO or Company x?

[Matty1234]

I have some concerns as to whether you are in fact an employee of company X. However, that aside given the situation we need to be looking at what the contractual arrangement is between your company MYCO and Company x. On that basis I really need to see the contract.

Who drafted the contract was it MYCO or Company x?

Hi Ula I think Company X have this structure to avoid all the things that come along with employees. I believe the majority of people working here are hired as contractors.

I will definitely get the contract to you this evening.

The main contract called the Brokerage Service Agreement was drafted by Company X. The side letter "Commission Sharing Agreement" was drafted by Company X too, but is written as though I sent it to them.