Restrictive Covenants

[t21rjr]

Hi all,

I left my previous employer in May and started up my own business as a financial adviser. I had restrictive covenants in my contract saying that I couldn't deal with any of my previous clients for a period of 12 months.

I had a letter from them last week saying that they were aware that I had been in touch with my clients "with a view to encouraging them to transfer away from [us]". Another paragraph stated that they considered that clients personally introduced by me remain their property and not mine, a point with which I disagree - they were all noted on the system as having been personally introduced by me with the definite inference that they would remain my clients and not those of the company.

So, I am not aware of having done anything improper. I have not contacted any of the clients which belong to the company - I asked them by return to provide any evidence they have to support their claim that I have acted improperly. They replied today to say that they have received "notification from several clients that you have approached them however because of our obligations under Data Protection we are unable to disclose their identities".

They are insisting that I sign an undertaking to cease and desist in these activities. I refuse to do so because I have already signed my contract which contains the covenants and I shouldn't need to sign something else that says I will stick to them. Surely if they have some evidence they should have to present it to me to either confirm or deny? I don't see the point of signing something to say that I will be bound by a document which I already signed....

So - are they just being threatening as a warning, or should I sign their undertaking? I really hate this stuff. Always try to do the right thing and act honourably with everyone, and they still threaten legal action. Shameful for a big corporation to try to take advantage of the little guy.

Appreciate your thoughts!

[R0b]

Re: Restrictive Covenants

If I were you, I wouldn't sign the undertaking, not yet anyway. Their refusal under data protection is rubbish as if they take you to court for breach of contract they would have to reveal which client's have stated they been approached by you and plus, you already know these clients that you personally introduced so I can't see a breach of DPA? A claim against you on the basis that you've done something but not given any evidence to say so will be thrown out as a case not to answer. Be wary of the undertaking there could be something in there that could say something you might not want to undertake.

Sounds like they are speculating here but that being said it all depends on the wording of the covenant. Are you able to upload it along with the undertaking to look at, and omit any personal info.

[t21rjr]

Re: Restrictive Covenants

Exactly my thinking on the undertaking - documents are at home - I will upload them later for info.

If they take me to court for breach of contract, would they have to give me notice of the clients in question in advance, or could they hold that information back to only spring it on me on the day?

The need for any undertaking seems irrelevant to me. I have a signed contract - if you think I've broken it, take your shot, otherwise you're just trying to bully me.

[stevemLS]

Re: Restrictive Covenants

I disagree.

You have a restrictive covenant preventing you from approaching clients of your former employer.

I find it absurd to talk of "property" in a client and the mode by which they became clients of your former company is utterly irrelevant to the terms of the covenant unless it expressly permits you to approach clients personally introduced by you.

Presumably part of your former job was to grow your client base.

The DPA question, again I disagree - there is a general exemption to the principles of the DPA which permits "processing" which term includes disclosure where it is necessary for the administration of justice (Schedule 2 para 5(a)) so in my view they are justified in refusing to disclose in correspondence but would be equally justified in disclosing in the context of litigation.

You might want to take a "put up or shut up" approach, but you risk becoming embroiled in time consuming and expensive litigation.

[Berniethebolt]

Re: Restrictive Covenants

I suppose the question is
Did you approach any of your former clients (from when you were employed) and tell them that you were starting up on your own and would they come to you or did you just tell them that you were leaving to start your own business .
I am not a legal expert by any means but if you have approached people and they have grassed you up (for want of a better phrase) would you actually want them as clients.

As an employee any agreement that was made with clients was between them and your employer not them and you

Remember people are not commodities to be bought and sold , we officially did away with slavery many years ago

[Amethyst]

Re: Restrictive Covenants

Have you approached any of your previous company's clients? ( whether you originally introduced them to the company or not)

You say ''. I have not contacted any of the clients which belong to the company'' however I think you are relying on the fact that you introduced clients to the company so consider them yours as opposed to the company's, and have contacted some of them with a view to enticing them to stay with you at your new company rather than remaining at your old company.

( posted same time as Jon, sorry -

As an employee any agreement that was made with clients was between them and your employer not them and you

completely agree with that )

[stevemLS]

Re: Restrictive Covenants

Have you approached any of your previous company's clients? ( whether you originally introduced them to the company or not)

You say ''. I have not contacted any of the clients which belong to the company'' however I think you are relying on the fact that you introduced clients to the company so consider them yours as opposed to the company's, and have contacted some of them with a view to enticing them to stay with you at your new company rather than remaining at your old company.

( posted same time as Jon, sorry - completely agree with that )

Isn't that what I said about the nonsense in "property" in a client?

[judgemental24]

Re: Restrictive Covenants

Restrictive covenants are only used with senior members of a company. The general consensus is such a contractual term is unlawfully restrictive once employment has been terminated. It will be for the employer to prove that restriction is needed and length of time to protect a legitimate interest within that undertaking. If the employer can show this then such a restriction can be upheld.

Restriction of 6-12 are reasonable under the circumstances

It sems like sour grapes to me by your previous employer and someone is &*^% stiring

To be honest if you consicence is clear there is nothing stopping you signing this consent order. It will only last 12 months from termination of contract and give a clear indication of your intentions on this matter.

[Amethyst]

Re: Restrictive Covenants

Isn't that what I said about the nonsense in "property" in a client?

Yes, I was backing you up really xx

[R0b]

Re: Restrictive Covenants

All valid points people are making but as regards to the DPA point, section 35 permits disclosure where it is in connection with legal proceeding including prospective legal proceedings. Therefore I see no reasons why the names cannot be disclosed. It would be different of course if they said they cannot disclose for fear of being harassed or threatened then that is an alternative valid point but certainly doesn't come under DPA.

Assuming the contract has been drafted properly and the covenent is a boilerplate, then yes it is possible that he would be in breach of his covenants, but that is not automatic. We do not know the way in which he was employed - was he deemed as an actual employee or was he a consultant or advisor or something else? The poster refers to saying that the the clients were noted as being personally introduced on the system - does this indicate that clients are the business' clients and he simply manages them or, does it mean that as they were introduced personally by him, he retains them as his clients? It all depends on the circumstances of the business and how the business worked. If it was agreed verbally that these specific clients would be his clients (subject to what his contract says) then there is an argument he is not in breach and more arguably if the period of restriction is indefinite, the court is likely to deem this unenforceable. Moreover, covenants are only used for senior employees and is difficult to apply to junior members of the company.

The reason why the ex-employer has sent you undertakings is probably to comply with the pre-action protocols but more importantly one thing to bear in mind that there are generally two types of undertakings:

1. a contractual undertaking which effectively sets out the employees obligations as laid out in the employee's contract and employeers will normally use this route. Breach of an undertaking will allow the employer to recover damages in the same wasy as the breach of contract. If an employee signs and breaches this, then it will be more difficult to argue that the obligations were not enforceable.

2. an undertaking to the court where the employer intends on seeking redress or simply does not trust the employee, it will ask for undertakings to the court. this requires a form of consent order and if the employee breaches this type of undertaking, then it is contempt of court.

It is rare for employers to choose option 2 however always need to be sure what is you would be signing if you do sign it. So we all may speculate but i think we would need to see his contract and undertaking would beuseful too

[Berniethebolt]

Re: Restrictive Covenants

Restrictive covenants are only used with senior members of a company.

That all depends on what you class as a senior member of a company

[des8]

Re: Restrictive Covenants

On a personal note I have always found these restrictive covenants almost impossible to enforce as there are ways round them.
When In worked in the City (XX years ago!) it was common practice to cultivate a personal relationship with clients.
If one then moved to another employer, one would send a template letter to every client advising them of your departure and wishing them well.
A number would then inevitably contact you privately to discuss what was happening and then move their accounts with you!
I had half a dozen who followed me through three moves!