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Scott Taylor
Scott Taylor, Solicitor
Category: UK Employment Law
Satisfied Customers: 41
Experience:  18 years practice on the High Street and in the City of London
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Until mid october I was contracting at a bank through an

Customer Question

until mid october I was contracting at a bank through an agency via my own limited company. The bank has now indicated that it would like to use my services again, but will not use the original agent. y contract included the clause below....Protection of Harvey Nash Goodwill and Proprietary Information
The Contractor shall inform HN of any direct or indirect approach to it or the Consultant by the Client with a view to
the Contractor working for the Client at any time prior to the expiry of six months after the termination or expiration of
this Agreement. The Contractor shall not (and shall procure that the Consultant shall not), without HN’s prior written
consent:
(a) prior to the expiry of six months after the termination or expiration of this Agreement:
(i) enter into (or approach with a view to entering into) a similar contract of employment or for
services directly or indirectly with the Client or Client Group Company; or
(ii) induce (or seek to induce) to leave or cease performing service(s) for any HN Group Company,
any contractor or employee of any HN Group Company with which or whom the Contractor or
Consultant had material contact in the course of its/his/their duties at any time in the 12 months
prior to such termination or expiration; or
(iii) induce (or seek to induce) the Client to engage the services of any other person in competition
with HN or provide candidates to the Client with a view to such candidates providing services to
the Client (other than via HN);
(b) use a business name used by any HN Group Company, for the purposes of a business similar to (or
competing with) any business carried out by an HN Group Company.
The provision of Clause 7 shall apply in respect of activities of the Contractor and/or the Consultant alone or jointly
with another or others in any capacity and whether or not for its or their or his benefit.I have tried to negotiate buying out my obligation under this clause but the agent refuses.What are the likely consequences, and costs of ignoring this restrictive clause, and going back directly to the bank?
Submitted: 10 months ago.
Category: UK Employment Law
Expert:  Scott Taylor replied 10 months ago.

Dear Customer,

I will be pleased to assist you with your question today.

The non-compete clauses which appear in the contract are fairly standard in these circumstances. The Agency has a financial and business interest in retaining you as a contractor as they will receive payments from the client/employer in relation to your employment with them. The clause which is of most importance to you will only apply in the event that your Agreement with the Agent was cancelled/terminated within the last 6 months. If you have not worked for them for longer than that period then you need have no concern. If you have, however, then you will need to bear the following in mind.

The starting point for any such post-termination restriction is that it is void on the grounds that it is a restraint of trade and contrary to public policy. It follows that an Agent is generally not entitled to protect himself against competition from his ex-employees or, in your case, contractors.

In order for these clauses to be upheld the Agent must be able to display that -

1 - the clause is designed to protect their legitimate business interests; and

2 - that it extends no further than is reasonable to protect those interests.

If both those tests are satisfied then the clauses are likely to be upheld if the matter comes before a Court. I believe it is clear that they have a business/financial interest to protect as their business is based on the commissions they receive from placing contractors in roles with their clients. The Court will also need to be satisfied that the clauses are not overly restrictive and clauses preventing activity for more than 6-12 months are generally seen as overly restrictive. I note that the clause here prevents you working for the Bank for 6 months after the termination of your contractor agreement with the Agent. As such I believe that the Agent would be able to satisfy both tests in this case.

If it becomes clear to the Agent that you or the Bank are in breach of this clause then they may, in the first instance, seek an injunction preventing you and the Bank from carrying on the breach. The effect would be that, in the first instance, you are prevented from working for the Bank.

The Agent can then seek damages against either you, the Bank or both. If the Agent can satisfy the Court that the clauses should be upheld (by reference to the tests above) then these damages would likely amount to the sum they would have lost owing to not having the opportunity to place either you or another contractor in that role. This would include a claim for the costs of any legal action. I cannot say what the level of damages would be as I do not know the financial arrangements between Agent and Bank, but they are likely to be significant. Likewise the legal costs of such cases can also be very significant as they can involve complex issues of law.

I should have thought it unlikely, though, that the Agent would pursue the Bank given that they would wish to maintain a working relationship with them. As such it seems to me that you would be more at risk in terms of any action than the Bank would be.

It is difficult for you to work around this issue, especially as the Agent is now aware of your wish to avoid the clause and work direct for the Bank. It may be that the Bank are prepared to assist you in your negotiations however this depends on how keen they are to have you work for them. This would be a financial decision for the Bank to take as it would likely involve them agreeing, direct with the Agent, to some form of compensation, whether that be by direct payment or by agreeing to more favourable business terms with the Agent for any future placements.

All of this depends, though, on the sums involved. If the financial loss to the Agent is relatively modest then they may take the view that the risk of proceeding outweighs the rewards they could likely receive. Obviously, the greater the sums at stake the more likelihood there is of them taking action. Many people do choose to ignore these types of clauses without any ill effects. This is normally due to the sums involved being modest and, therefore, the Agent deciding against pursuing them. On the other hand, they are valid and are likely to be upheld by the Courts if the matter comes before them.

It is a matter for you and the Bank as to whether you wish to proceed, but please do be aware that there are risks in doing so. If you do elect to proceed you would do well to seek formal legal advice. It may be that a solicitor can enter into discussions with the Agent on your behalf and resolve the issues before they develop.

I hope that this reply has been of assistance and I hope you manage to find a way to work around these issues.

Kind regards

Scott

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