Employment Law and Restrictive Covenants: Breach of Non-Solicitation Clauses
On the sale of a business, a buyer will usually require restrictive covenants to limit the ability of the seller to compete with it post-sale. These normally take the form of non-dealing clauses and non-solicitation clauses. Following a recent High Court judgement, Baldwins (Ashby) Limited v Andrew Maidstone, sellers need to ensure that they are fully aware of the risks of breaching non-solicitation clauses even when former clients initiate the contact.
Background
Mr Andrew Maidstone, accountant and defendant in Baldwins (Ashby) Limited v Andrew Maidstone, sold his accountancy practice to Baldwins (Ashby) Limited for approximately £1 million in 2007. The sale agreement included a three year covenant protecting the goodwill in the company from Mr Maidstone, "canvassing, soliciting or endeavouring to entice away" any former clients. However, it did not include a non-dealing clause meaning Mr Maidstone was able to work for former clients if they solicited him to do so without his, "canvassing, soliciting or endeavouring to entice away". Later, in 2009 Mr Maidstone joined a new firm, Charnwoods and shortly thereafter Baldwins issued proceedings against Mr Maidstone for breach of the non-solicitation clause.
Findings
Mr Maidstone admitted that some of his former clients had followed him to Charnwoods but claimed that he had not "canvassed, solicited or endeavoured to entice" them away. Four clients and the managing partner of Charnwoods gave supporting evidence on his behalf.
The Court found that both Mr Maidstone and Charnwood's managing partner, Mr Barnett, were dishonest and unreliable witnesses and that Mr Maidstone had entered into a secret agreement with Charnwoods to poach clients from Baldwins in return for commission payments.
Mr Maidstone attending new client meetings with former clients and following up chance meetings with formal client meetings were breaches of the non-solicitation clause.
Mr Maidstone simply telling a client who contacted him that he was leaving Baldwins, and when asked, saying he was moving to Charnwoods did not amount to breach. However, when the client indicated that he wanted to follow Mr Maidstone to Charnwoods and Mr Maidstone then introduced that client to Charnwoods, it was a breach.
Conclusion
The Court held that how contact is first initiated is not relevant to a breach of a non-solicitation clause; it is the substance of what passes between the parties that determines whether there has been any breach. On a true construction of the non-solicitation clause Mr Maidstone was found to be in breach in respect of each of the named clients despite circumstances in which clients had made the first contact with him.
This case demonstrates the key difference in strength between a "non dealing" post termination restriction and a significantly less strong "non solicitation clause". Had the employees had non dealing clauses in their contracts, their conduct would have been straightforwardly unlawful.
If you have any queries regarding non-solicitation clauses or other Employment issues, Rollingsons has experienced lawyers who can advise you. For more information please contact Aneil Balgobin on 0207 611 4848.
