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

[ULA]

Thank you for sending me the contract which I have had a chance to review the relevant clauses.

This is clearly a contract for services and is not an employment contract. I am not experienced in your industry, so I cannot say whether restrictive covenants of this type, in such a service agreement, are typical. So, some observations:

1. You signed up to the terms knowing that there was this restrictive covenant (RC) in place, which may or may not be typical for your industry.

2. The RC is very wide in terms of what it covers and the territory for the 6-month period. I have done some research on case law and the closest I can find to your situation is this case reported here: https://www.wrighthassall.co.uk/know...ces-contracts/

3. That case was dealing with a 12-month restriction and effectively stopped the IFA’s from working with clients that in some instances they have been working with for a long time.

4. In the instances of enforceability of RC’s, it all hinges on whether they are reasonable and in instances when these matters are pursued, it is the Courts that end up deciding.

5. I would take issue with the wording at point 3 of the side letter as it does imply an employment arrangement which, in my opinion given the contents of the service agreement, is not in fact correct but I think that is a moot point.

I think the only way to be really sure of how enforceable clause 6 is, would be to seek some professional legal advice if you are inclined to do so. It also may be that if a legal professional believes there is a case to argue, that a strongly worded letter from them may make Company X come to some sort of compromise in a reduced scope of the RC.

Sorry I cannot be of more help but hope that this does give some signposting as to what you can do.

[Matty1234]

Thanks Ula
I've always only been an employee at my previous companies but these guy wanted me to join as a contractor. I guess I'll have to find a Business Contracts lawyer.

One thing if you can help.....the side letter talks about the "agreement" being a Commission Sharing Agreement. Whereas the main contract is a "Brokerage service agreement" Does this then make the side letter irrelevant and not linked to thr main contract?

[ULA]

This is definitely not an employment contract sorry. You want to find someone who has experience of provision of services agreements.

Agreed the side document does not reference the correct name of the main contract but I think it would come down to the intention that both documents form part of the total agreement between you and Company X

[2222]

I think an agreement that prevents you working in your chosen profession unpaid is abhorrent. It's akin to slavery. I would hope the courts would take the same view.

[Matty1234]

It really is a rubbish position to be in. Company X is a small firm and there's no need to restrict me for 6months without pay. I will of course have to survive on savings to support my 3 children and wife. Such a pathetic company. Hope karma comes back at them and bites them hard.

In the meantime I will have to keep begging them unless I can find a legal route.

[ULA]

Just to confirm is the company you are going to one that has either supplied service to Co X or an associate of Co x or been a client or prospective client in the last 12 months. Or is a competing or preparing to compete with Co X.

I would suggest finding a relevant solicitor who may do a free or fixed fee initial consultation to establish whether the restrictions are too wide in terms of scope and territory and deny you a livelihood for 6 month after you notice has ended to justify them being enforceable if you did not comply and they went down the route of an injunction to enforce. In terms of an employee/employer relationship then I believe these arguments would hold some ground but you have a business to business agreement so I am less sure of my ground. I really hope that they would be but best check with a legal professional.

[Matty1234]

Thank you Ula for your help and direction. I will keep trying to negotiate but take on legal advice in the meantime too.

[Matty1234]

The new company is seen to be a direct competitor albeit 100x bigger and my role is completely different and won't be speaking to the same clients. Will keep this post updated in case anyone falls into the same dilemma in future.

[ULA]

Please do come back and update us and best of luck

[Amethyst]

Matty1234 - just wondered whether you got any further with resolving this situation ?

[Matty1234]

Hi. Thanks for thinking of me! Things taken a different route. They forced me out on gardening leave and arent paying me so have gone to ACAS. The contract is fictional and I dont think the self employed status is correct. Fingers crossed. If its a breach of contract then restrictive covenants wont apply - i think.

[paulajayne]

"They forced me out on gardening leave and arent paying me"

I would imagine that they are in breach of contract making it invalid?

What do other Beagles think?

[ULA]

Hi again Matty1234. I think we are back to the question of what is the basis of the contract i.e. employee/employer or business to business. I have reviewed the documents you PM'd me a while back and clause 11.4 and its sub-clauses will be what they have relied on to not allow you access to the building or to work until the effective exit date.

Hopefully if ACAS can unravel the contractual basis of the relationship then it will become clear as to what course of action you can take and that in fact the restrictive covenants are too wide and not enforceable.

Please keep us posted and happy to help if you want to run anything past us when you hear back from ACAS.

[Matty1234]

Thanks! ACAS won't be able to determine employment status as that will be for the tribunal to decide. As far as I'm concetned, having done a lot of my own research as well as speaking with a lawyer and a barrister, it is quite clear that I'm not self employed.

I started the ACAS process and still awaiting a conciliator to call me. I guess there are other things I can do such as write to my previous 'employer' and tell them I'm terminating my contract with immediate effect due to repudiatory breach of contract. Don't really know what to do after that but I'm sure I will find out what to do.