Hanover Insurance Brokers Ltd & Anor v Schapiro & Ors

A post-termination covenant may protect an employer’s customer connections, but it cannot operate merely as a covenant against competition. A prohibition on soliciting employees is unenforceable where it extends indiscriminately to all employees, including those who joined after the former employees left. Words covering an attempt to take away business may be upheld if construed as preventing active seeking out of customers, while leaving ordinary responses to customer approaches outside the restraint. Covenants covering a corporate group are read in context and may be confined to the relevant business. Whether a customer restraint is too wide because it includes customers unknown to the employee is fact-sensitive and may require a final hearing.

Four former employees of Hanover Insurance Brokers Ltd sought to establish a competing insurance-broking business. The company obtained ex parte injunctions enforcing 12-month post-termination restraints. Latham J discharged the employee-poaching injunction, maintained customer-solicitation restraints against Schapiro and Anscombe, and substituted equivalent restraints against Rose and Knowles on the correct contractual wording.

The defendants appealed, and the company cross-appealed against discharge of the employee-solicitation restraint. The central issues concerned construction and reasonableness, including the meaning of endeavouring to take away business, the scope of restraints referring to the Hanover group, the relevance of pre-existing customer connections, and whether the restraints had to be limited to customers known to the employees.

Dillon LJ gave the leading judgment, with Nolan LJ agreeing. The defendants’ appeal and the plaintiffs’ cross-appeal were dismissed.

1. The cross-appeal failed. A restraint against soliciting employees cannot be used as a mere covenant against competition. Employees remain entitled to work for an employer willing to employ them. The injunction was also impermissibly wide because it applied to all employees, regardless of expertise or seniority, including employees who might join after the defendants had left. The court applied the reasoning in Kores Manufacturing Co. Ltd. v Kolok Manufacturing Co. Ltd [1959] Ch 109 and Konski v Peet [1915] 1 Ch 530.
2. The words endeavouring to take away were sufficiently certain when understood as preventing active seeking out of the plaintiffs’ customers. They did not prevent ordinary dealings where a customer approached the defendants. The words could therefore remain in the injunction.
3. Schapiro’s pre-existing customer connections did not make the restraint unreasonable. M. & S. Drapers (A Firm) v Reynolds [1957] 1 WLR 9 was distinguishable because it concerned a travelling salesman and a five-year restriction. The distinction between a salesman and a managing director, reflected in Gilford Motor Co. Ltd v Horne [1933] Ch 935, was material. Schapiro was a chairman and was at least as well placed to protect himself.
4. The restraints imposed on Rose and Knowles were construed as relating only to insurance-broking business and insurance-broking customers. They did not cover customers of group companies for unrelated businesses. The possible existence of unknown insurance-broking activities in another subsidiary did not invalidate the restraints on the facts.
5. The challenge based on lack of knowledge of customers was not decided. The validity of such a restraint is fact-sensitive. Relevant matters included the nature of the business, the customer base, and the employees’ actual positions, contacts and knowledge. The point had not been taken below and depended on disputed facts, so it was unsuitable for determination on this interlocutory appeal. Plowman v Ash [1964] 1 WLR 568 remained authoritative; Marley Tile Co. v Johnson [1982] IRLR 75 was materially different.
6. Nolan LJ added that, when balancing interim relief for a time-limited covenant, the court should consider the period before trial where damages are inadequate and the interim period cannot be recovered. The timing of the trial carried weight, although it was not decisive. He also considered that the apparent difference between J. A. Mont (UK) Ltd v Mills [1993] IRLR 172 and Littlewoods Organisation Ltd v Harris [1987] 1 WLR 1472 should be resolved by a full court at a final hearing.

The appeal and cross-appeal were dismissed with costs in each case in any event.

• Court of Appeal (Civil Division): On 20 August 1993, Dillon and Nolan LJJ dismissed the defendants’ appeal and the plaintiffs’ cross-appeal, with costs in each case in any event: [1993] EWCA Civ 2.
• High Court of Justice, Queen’s Bench Division: Latham J, sitting in chambers, on 6 August 1993, discharged the employee-poaching injunction, maintained or reinstated customer-solicitation restraints for Schapiro and Anscombe, and substituted corrected customer restraints for Rose and Knowles.