Bradford 01274 306 000
Leeds 0113 220 6270
Huddersfield 01484 915 000

Whose Customer? “It was mine first!”

The Bradford based litigation team of Schofield Sweeney has been successful in assisting a client in avoiding a claim which was threatened against it and one of its employees by that employee’s former employer.

The employee had come from another business in the same industry.  His employment had been subject to a contract which contained a number of post termination restrictions and restrictive covenants aimed at preventing from soliciting business from, or canvassing, any customers of the former employer or competing with it by accepting orders or having dealings with any of its customers. 

Having joined Schofield Sweeney’s client, the employee received a letter of claim from his former employer’s solicitors alleging various breaches of contract and listing named customers who they said had generated significant income for the former employer.  The solicitors produced some evidence of contact between the employee and some of those named customers.  Undertakings were requested from the employee not to solicit business from or canvas any customer of the former employer or to accept orders from or have any dealings with them.

The solicitors also wrote to Schofield Sweeney’s client alleging that it was inducing the employee to breach the post termination provisions of his contract and threatening proceedings against that company if it did not give undertakings, including an undertaking not to induce its employee to compete with his former employer by soliciting business or canvassing customers and accepting orders from them.

On the face of it, the employee was in breach of his post termination provisions because there was some evidence that specified customers had been approached.  However, on enquiry by Schofield Sweeney, they established that all the named customers listed in the solicitors’ letter had all been introduced by the employee to his former employer.  They were not contacts that had been given to him but ones which he had previously established and introduced to the former employer.

Schofield Sweeney responded to the solicitors on behalf of its client and the new employee and denied that there had been any breach of the post termination provisions of the employee’s contract and in denied that Schofield Sweeney’s client had induced any breach of those post termination provisions.

Schofield Sweeney explained that although contact had been made with the customers of the former employee, that was not a breach of the post-termination restrictions because the employee was able to rely on a case dating from the mid-1950s which had been decided by Lord Justice Denning (as he then was).  In that case, Denning LJ had said (using wording of its time), “During the last 40 years the courts have shown a reluctance to enforce covenants of this sort.  They realise that a servant has often very little choice in the matter.  If he wants to get to keep his employment he has to sign the document which the employer puts before him; he may do so without fully appreciating what it may involve.  Moreover, if these covenants were given full force, they would tend to reduce his freedom to obtain better conditions, even by asking for a rise in wages; because he is not allowed to get work elsewhere, he is very much at the mercy of his employer.”  Denning LJ also said “… I think that the employer might reasonably protect their own trade connection, that is the connection which was properly their own as distinct from the connection which the traveller brought with him.  I do not, however, see why the employer should be able to forbid him to be able to call upon the people he already knew before he worked for them – the people who, I call “his customers”.  His knowledge of these people and his influence with them were due to his own efforts – or at any rate they were nothing to do with the employer.  His goodwill with those customers belonged to him, and cannot reasonably be taken from him by a covenant of this kind.”

 Whilst of some vintage, that judgment was entirely apposite to the present case.  The customers referred to in the letter were pre-existing connections of the employee.  Schofield Sweeney’s response to the solicitors was that there was nothing to prevent the employee making contact with any customers which were his pre-existing connections.  Nothing more has been heard from the former employer’s solicitors.

If you need further assistance with an issue involving restrictive covenants, please speak to James Staton of Schofield Sweeney on 01274 377651.

 

About the Author

James Staton

Partner

James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…

View Profile View all