Tradition Financial Services Ltd v Gamberoni & Ors

The validity of post-termination restrictions is assessed at the date of the employment contract. The court must construe the covenant, identify the employer’s legitimate protectable interests, and decide whether the restraint is no wider than reasonably necessary. The assessment is fact-specific and may take account of industry practice, although industry standards are not determinative.

A non-compete covenant may be justified where non-solicitation and confidentiality obligations are difficult to police. A potential period of garden leave may be relevant to validity, while actual circumstances at trial may affect the court’s discretion to grant relief. Restrictions protecting client connections and confidential information may extend to secondary client relationships and non-client-facing work where the employee has relevant confidential knowledge.

The claimant, an inter-dealer broker, sought to enforce six-month post-termination restrictions against its former junior broker, who had joined a competing broker before the contractual restriction expired. The restrictions included non-compete, non-solicitation, non-dealing and employee-related covenants.

The defendants argued that three months would have been sufficient, that the covenants were too wide, and that garden leave and the claimant’s decision to restrict the employee’s client contact made enforcement unreasonable. Following an expedited trial after interim undertakings had been given, the central issues were whether the restrictions were valid and enforceable and whether the court should exercise its discretion to permit earlier employment with the competitor.

1. Validity. The restrictions had to be assessed as at the date of the contract. The employer bore the burden of showing that the restraint protected a legitimate proprietary interest and was reasonably necessary. The applicable sequence was: construction of the covenant; identification of legitimate interests requiring protection; and assessment of whether the covenant was no wider than reasonably necessary.
2. The court adopted a broad, common-sense and fact-specific approach. Evidence of industry practice could assist, but did not determine the result. Client relationships, confidential information and workforce stability were legitimate interests. A non-compete covenant was justified because non-solicitation and confidentiality obligations were difficult to police and the parties disputed their scope.
3. The six-month non-compete period was reasonable. Looking prospectively from the contract date, the parties could reasonably have contemplated a period of garden leave followed by six months’ restriction, producing up to nine months away from the market. That possibility did not make the covenant invalid. The employee had remained close to the claimant’s operations rather than being placed on garden leave, which reinforced the justification for the full restriction.
4. The covenant was not impermissibly broad. Properly construed, it did not prohibit passive shareholdings; alternatively, any ambiguity should be resolved in favour of a lawful construction. The restriction could extend to non-client-facing work because confidential client information could be used in such work. Secondary client relationships were also legitimate interests capable of protection.
5. The court retained a discretion whether to grant relief even after finding the restrictions valid. Good grounds were required to set aside the contractual obligations. The employee’s undisclosed communications with clients and provision of a confidential client list to the competitor provided no such grounds. The restrictions were therefore valid and enforceable, and there was no basis to permit earlier employment or to consider springboard relief.

The judgment followed an interim injunction application before Soole J on 20 January 2017, which was resolved by undertakings and directions for an expedited trial. The present court then determined the substantive validity and enforceability of the restrictions. No appellate decision is stated.