Beckett Investment Management Group Ltd and others v Hall and others (Court of Appeal)
When is a post-termination restraint clause enforceable? Is a 12-month restraint too long? In Beckett Investment Management Group Ltd and others v Hall and others, the Court of Appeal gave some useful guidance in the context of the financial services sector.
Beckett Investment Management Group (BIMG) was a holding company. Its subsidiary, Beckett Financial Services (BFS), provided financial advice. Two senior employees, Hall and Yadev, worked at the office of BFS as financial advisers. Both resigned around the same time to start up their own competing business.
Both of their contracts of employment had been made between the employees and BIMG (the holding company). The contracts contained a 'non-dealing' clause to restrain the employees from providing "advice of a type provided by the company in the ordinary course of its business". The contracts defined "the company" as BIMG (without including its subsidiary, BFS). However, BIMG did not provide any financial advice because it was merely a holding company. The restraints applied for 12 months post-termination.
The employees argued that they were free to provide financial advice to clients of BFS because the non-dealing clause only applied to BIMG. They also argued that the period of 12 months was arbitrary and excessive, so the clause was unenforceable.
The judge agreed with the employees, but the Court of Appeal overturned the decision, saying the trial judge took a view of the clause that was too literal. It said that the purpose of the non-dealing clause was clearly to protect the employer from losing its clients to the employees, and that the parties were aware of this purpose when they made the contracts. In the court's view, the "only sensible construction" of the clause was that it also applied to BFS.
The original judge also found that 12 months was too long a period to restrain the employees from dealing, making the clause unenforceable. He considered three months to be reasonable.
Again, the Court of Appeal disagreed. It took into account the facts that:
- the employees were senior and important to the business
- it would be difficult and time consuming to replace the employees
- the clients might only contact BFS annually
- the industry standard is 12 mont