Broker breached non-solicitation covenant
Posted: 17th May 2013
An insurance broker who moved from one employer to another, taking his extensive network of clients with him in breach of a restrictive covenant in his employment contract, has been ordered to pay damages. The High Court ruled that the non-solicitation clause was both reasonable and enforceable.
The broker was recruited to work at a company’s newly-opened office in Halifax in the hope that he would bring with him his substantial client following in the town. He believed that he had done well in building up the office’s business. However, his bosses were ‘less happy’ and decided to substantially reduce his salary, telling him that he would make up the difference if turnover improved.
The broker agreed to that reduction; however a fraught meeting followed a month later and he resigned soon afterwards, claiming that he had been constructively dismissed. The following day, he started employment with another insurance broker in Halifax. He succeeded in bringing a substantial number of his former employer’s clients onto his new employer’s books.
His former employer accused him of breaching a restrictive covenant in his contract which blocked him for a year from taking orders from any of its clients with whom he had dealt during his last six months with the company. The broker responded with arguments that the company had repudiated his contract and that the non-solicitation clause was not binding upon him.
The broker claimed that the company had ‘seriously mismanaged the employment relationship’ by renegotiating his salary in one month and starting a redundancy process in the next. There had, he argued, been a breakdown of trust and confidence in the employment relationship.
Rejecting the broker’s plea that he had been constructively dismissed, the court found that his former employer’s offer to consult him about a possible redundancy payment had not been ‘a sham’. The broker had ‘ignored’ that offer and ‘jumped the gun’ by reacting to it in the way that he did.
The broker also argued that he received no consideration in return for the restriction on his liberty after leaving the company. However, the court noted that such restrictive covenants were commonplace in the insurance broking industry. It was the broker’s client connections that had made him attractive to the company in the first place and his former employer was aware that, just as he could deliver business to the company, he might well be able to take it with him when he left.
The amount of damages and legal costs payable to the company will be assessed at a further hearing unless settlement terms are agreed. The broker’s new employer had agreed that it would cover the cost of those liabilities on his behalf.