Today’s article looks at Romero Insurance Brokers v Templeton and Eastwood & Partners Limited, a High Court of England & Wales decision discussing Restrictive Covenants in Employment Contracts that is informative from an Irish perspective and particularly relevant in the insurance sector.

Case Name And Reference: Romero Insurance Brokers v Templeton and Eastwood & Partners Limited [2013] EWHC 1198 (QB)

Court/Tribunal: High Court

Jurisdiction: High Court of England and Wales

Subject Matter: Restrictive Covenants in Employment Contracts


Facts:

1. On 22nd November 2011, the Defendant in this case Mr. Andrew Templeton entered into a contract of employment with the claimant, Romero Insurance Brokers Limited (“Romero”) and his employment began a week later. Mr. Templeton was employed as office manager of a new office which was scheduled to open in February 2012.

2. The working relationship between Mr. Templeton and his superiors began to strain when turnover was not meeting the firm’s expectations. Following a meeting on 6th August 2012 with senior management, Mr. Templeton’s salary was reduced. A further meeting took place on 28th September 2012 in which Mr. Templeton was informed that his role at Romero was at risk. Mr. Templeton resigned on 8th October 2012 and began working with rivals Eastwood & Partners (“Eastwood”) on the following day. Romero alleged that he began to approach and engage with clients from Romero immediately.

3. On 13th November 2012, Romero issued proceedings against Mr Templeton and his employers seeking an interim injunction to enforce a restrictive covenant in Mr Templeton’s contract prohibiting him from procuring orders from clients who had done business with Romero in the previous 6 months for a period of 12 months after ceasing employment.

4. The Court was asked to rule on whether or not the 12 month restrictive covenant was reasonable in the interests of the parties and in the interest of the public.


Determination:

The Court ruled that it was up to Romero to establish that the covenant was reasonable. Judge Jack stated that the party seeking enforcement must show “a protectable interest”.

A protectable interest was taken to mean Romero’s trade connection with customers with whom the former employee had dealings. The Court ruled that if the restraint is greater than is reasonably necessary to protect the trade connection, it will not be enforced.

Therefore, the only point on which the case was to turn was the length of the covenant, i.e. whether 12 months was reasonable or not.

The Court found that a 12 month restrictive covenant was the industry norm. This was held to be an important factor, especially when read in light of the fact that Mr. Templeton had a 12 month covenant with his employer prior to Romero and again with his current employer, Eastwood.

An important factor in determining whether 12 months was reasonable or not was the fact that insurance policies are generally renewed annually and the renewal date is when a client is most likely to change brokers. Courts have previously held that renewal dates are a factor in such cases as was set out in Lonmar Global Risks Ltd v West [2010]

In upholding the 12 month restrictive covenant the Court stated that “it was reasonable for Romero to seek to protect their client connection with a 12 month restriction against solicitation by Mr Templeton in the way Romero did. The clause is enforceable.”

It should also be noted that the Judge stated a covenant of longer than 12 months would not have been reasonable.


Damages:

The Court granted the injunction application for the remaining 12 months and awarded damages for the breach of the covenant by Mr. Templeton following his resignation. The Court ruled that the quantum of the damage should be assessed subsequently and at the expense of Romero, i.e. Romero must pay the costs of assessing the damage.


Commentary:

While this is a UK case it is certainly informative from an Irish perspective and relevant in the insurance sector.

The most salient point to take from the ruling set out above is the fact that while there is a generally held belief that many restrictive employment covenants are not binding, a well thought out and individually tailored restriction can and will be binding.

Employers need to be careful when drafting such clauses. A restriction needs to fit with an Employer’s business needs. For example, a 12 month covenant seeking to restrict a sales manager who deals with clients on a weekly basis will most likely be found to be unreasonable. If a shorter period is sufficient to protect an Employer’s business interests, the covenant should be drafted as such.

Most importantly, while not a factor in this case, it should be remembered by all Employers to carry out all proper procedures when terminating employment. Employees in certain situations can rely on an Employer’s failure to use proper and fair procedures as a means of circumventing restrictive clauses.