Sometimes it must be tough being a High Court Judge, especially where you have to separate your distaste for a party’s ethics from the actual legal merits of his case. So hats off to Mrs Justice Simler for combining in Croesus Financial Services Limited –v- Bradshaw & Bradshaw last week a fairly gleeful trashing of the defendants with some useful guidance both to employers trying to enforce restrictive covenants and employees trying to get round them.
The Bradshaws were father and son, employed by Croesus as financial advisers. Their contracts contained twelve month restrictions on soliciting and/or dealing with Croesus’ clients. Bradshaw Senior retired and Junior went off to work for a competitor, clutching several copies of his father’s client list. Twelve months is generally regarded as at the very outer edge of what you can ever enforce through a covenant in an employment contract unless your employee knows the formula to Coca Cola, so both Bradshaws had reason to be relatively relaxed on their way into the High Court to defend Croesus’ application for an injunction and damages in relation to the clients lost to Bradshaw Junior’s new employer.
Mrs Justice Simler was unmoved. “Neither Bradshaw was entirely credible or satisfactory”, she said, and “when it suited them, their recollection of significant issues or events was incomplete or hazy and their explanations often implausible and sometimes evasive”. There were numerous other references to their stated cases being inconceivable, implausible, startling, unpersuasive, etc. She poured particular scorn upon the suggestion that the only purpose of the meetings which the Bradshaws had covertly arranged with Croesus’ clients was to tell those clients that Bradshaw Junior was bound by covenants and so could not in fact deal with them anyway. As you would.
So the lessons for intending circumventers of restrictive covenants appear to be:-
(i) either (a) don’t send copies of your client list to your home email address just before you leave or (b) have a good reason why you did;
(ii) try to keep your evidence consistent with (a) documents which you yourself wrote or signed and (b) that of your co-defendants; and
(iii) if you take steps which look as though you are covering up something illicit, the presumption will be that there is something illicit which needs covering up.
Having mercilessly despatched the traditional rather feeble constructive dismissal allegation, the Judge turned to the enforcement of the twelve month restrictions. Gallantly resisting automatic extrapolation from her views of the Bradshaws’ evidence to a finding against them, she made these useful points:-
(i) “Where the Court is presented with two equally tenable meanings of a covenant, [it] ….must steer a course between giving to the clause a meaning which is extravagantly wide and giving [it] a meaning which is artificially limited. The task of the Court, in construing the contractual term is simply to ask itself: what did the parties intend by the bargain which they made in the circumstances in which they made it”.
(ii) In carrying out that exercise the Court will “regard as important the principle that the parties are to be deemed to have intended their bargain to be lawful and not to offend against the public interest”.
(iii) (This bit is particularly helpful for employers which rely strongly upon personal relationships to make up for a lack of regularity in contact with their clients. “Establishing a new relationship in circumstances where the majority of clients are only contacted on an annual basis depends on demonstrating integrity, reliability and good performance and is built up gradually over time. It is not simply a question of organising a first meeting between new advisor and client. Nor can the process be artificially speeded up: any unwarranted contact …..or contact at a different time than expected is likely to be viewed with suspicion or as a hard sell, and may be counter-productive”.
(iv) The Judge also poured cold water on the usual assumption that there is no solicitation where it is the customer who first contacts the ex-employee. Although that is relevant, all the circumstances surrounding that contact must be considered. There is no general rule that wherever a customer initiates contact, the ex-employee can respond seeking custom without breaching a solicitation restriction. That was particularly true here since the Judge found that the Bradshaws had engineered those “first” contacts by the Croesus customers anyway.
(v) A claim for damages by the former employer will be weakened if it has failed to take reasonable steps to mitigate its own losses, e.g. by inserting a new advisor into the relationship at the earliest opportunity.