Contracts - Keeping your word

The Towergate Underwriting v Total Broker Solutions case in 2007 showed the readiness of employers in client-led industries such as broking to invest time and money in enforcing restrictive covenants.

Following an out of court settlement, Peter Cullum, executive chairman at Towergate, said: "The outcome is of outstanding significance to any professional services firm, particularly in the insurance industry where you hear all too often that 'covenants are not worth the paper they are written on.'"

Brokers considering whether or not to make a fresh start should also bear in mind several recent court decisions.

It is a high-risk strategy for brokers to assume that a long restriction period will be unenforceable. A year was seen as reasonable by the Court of Appeal in Huw Thomas v Farr and you can show that a year is necessary to protect an employer's legitimate business interests because of the annual renewal cycle.

Brokers cannot assume that time on gardening leave will reduce the restraint period of the covenant. Some contracts provide for this, but if they do not then they should proceed with caution. In ExtecScreens & Crushers Ltd v David Rice, the full period of a covenant was upheld where employment was specified as terminating at the end of the notice period.

Arguments denying enforceability based on duress, lack of consideration or uncertainty will not necessarily be successful. Even a widely drafted and generally worded clause might not be "too vague" to be effective, as was found in International Consulting v Hart.

Depending on the broker's seniority, non-solicitation clauses can be upheld even if the broker had no direct dealings with the former clients in question, as happened in the case of International Consulting. Brokers should also be careful how they use information that is potentially confidential like contacts lists from their former role. FSS Travel and Leisure Systems Limited v Johnson provided guidelines as to what will be construed as express confidentiality restrictions.

Those that leave should not assume that they could recruit their old team. Restrictions on poaching will often prevent these people from approaching former colleagues, although sometimes these restrictions may be drafted too widely as was seen in Cantor Fitzgerald v Bird. They should also think carefully before trying to resist injunctive proceedings if they have breached a covenant. If the court upholds the injunction then they will end up paying two large bills for legal costs and will be facing a fight over damages, although employers will need to show causation to claim them.

If confidential information has been used inappropriately, or a fiduciary duty has been breached, an employer could bring a claim for an account of profits. In those circumstances the need to show causation falls away.

- Frank Morton, partner, employment and pensions group and Daniel Preddy, associate, professional risks group, Beachcroft LLP.