In Merlin Financial Consultants v Cooper the High Court upheld a UK-wide 12- month non-competition restriction in a "good-will agreement" under which the employee had received payment for clients he bought with him on joining. When Mr Cooper resigned and set up his own business taking clients with him, Merlin brought a claim for breach of contract seeking damages for the loss of profit from those clients for two years after his resignation. The High Court held the clause was enforceable as the agreement was more in the nature of a business sale agreement which the parties had entered into with equal bargaining power. It found there was a legitimate interest to protect and awarded loss of profit for 70% in the first year and 30% in the second.
Key Points
- The Court referred to previous decisions supporting a financial services "industry standard" of 12 month restrictions to protect strong client relationships.
- The Court did not consider the geographic area (the UK) was too wide, even though Merlin's clients were mainly in London and the south-east, as it noted that the financial services industry was a "single geographic market". Perhaps if this had been an employment contract the court might have come to the opposite conclusion. Nevertheless, its comments about the nature of the financial services industry are helpful to employers in the sector.
- The Court held that the breach of contract claim, rather than an injunction, was entirely appropriate as Merlin did not wish to harm the relationship with clients and damages was an effective remedy.
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