In Towry EJ v Bennett and others, the High Court has confirmed that the element of persuasion is a key element to establish a breach of a non-solicitation clause. The main difference between a non-solicitation clause and a non-dealing clause in an employee’s post-termination restrictive covenants is that solicitation requires an identifiable element of persuasion.
The defendant employees worked for company E as financial advisers. E’s business model had been for the employees to autonomously build up their own client base in their local community. E was subsequently bought over by T, and, following the acquisition, the business model changed, with client funds being managed centrally, and T required the employees to enter into new contracts containing non-dealing clauses. Given the largely autonomous nature of the employees’ roles, and the individual client bases they had developed, this was of major concern to the employees. They didn’t sign the new contract, but all left to work for R.
The employees’ contracts with T did however contain post-termination restrictive covenants preventing their solicitation of T’s clients for 12 months. A high number of clients then transferred from T to R, leading T to assume that there must have been solicitation of those clients by the employees. T brought proceedings against them for breach of contract.
The employees argued in response that certain steps taken by T when acquiring EJ had amounted to a repudiatory breach of the implied term of trust and confidence, entitling them to terminate their contracts with T, including the non-solicitation provisions. In response, T argued that they had required the employees to sign up to the new contract terms to ensure consistency across their wider business.
The High Court dismissed T’s claims. Whilst they found that there had been no repudiatory breach of contract by T, and so the non-solicitation clauses were technically enforceable, there was insufficient evidence of persuasion to support the assertion that clients had been actively solicited by the employees. In fact, it was apparent that the new employer had proceeded cautiously to ensure that the employees complied with their non-solicitation obligations and therefore protect themselves against any claims from T. Further, evidence from the clients was that they had followed the employees voluntarily. There was not, therefore, any evidence that the clients had been actively solicited, and that the employees had therefore breached their contracts.
Impact for employers
- This case is a very useful example of the importance of having both non-solicitation and non-dealings clauses in employment contracts, where you want to protect your client base after an employee leaves to join a competitor. The protection afforded to an employer by a non-solicitation clause is fundamentally lower to that afforded by a non-dealing clause, due to the requirement with regards a non-solicitation clause for evidence of active solicitation on the part of the employee.