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Employment contract restricts member's future

I left practice within the last year to work in industry but my position is under threat as the company is experiencing difficulties.

My previous contract whilst in practice specified that I could not act in a similar role to that of my previous employer within a 5-mile radius for 2 years. Is this reasonable and would it stand up legally?

Clearly I need to work to feed my family and my expertise is as a Chartered Accountant so if an alternative position is not available elsewhere it may become necessary for me to take any work I can as a sole practitioner.

Surely as long as I stay away from previous clients (which I intend to do) there should be no issues but I just wanted some opinions from fellow professionals.

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By lenny
30th Mar 2011 21:00

Sounds resonable

Does that mean you cannot set up practice within 5 miles?  or not do any work in another practice? You could set up 6 or more miles away and then after 2 years pick up clients within the exclusion zone.

As it is only 5 miles is does not seem too restrictive to me, i guess you need to look at the penalties involved if you are found out

 

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30th Mar 2011 21:09

Not a lawyer but...

I am not a lawyer and you should take legal advice about the specifics of your contract. My experience is however that none of these restraints of trade are in reality enforceable and attempts to enforce them require bottomless pockets. I have been on both sides of this as well.

Steve

 

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30th Mar 2011 22:07

Most of these fail

because they effectively either tie the employee to the employer indefinitely (e.g. An excessive notice period would put off all or most potential future employers) or otherwise because they would prevent the employee from making a living in his or her trade or profession.  The EU convention on the free movement of labour has also been sited but I gather is spurious in such cases.

In your case neither of these would seem to be the case; five miles is nothing in terms of commuting.  Having said that it would depend on the penalties, if specified, whether it would stack up and would, as already posted, be expensive for your previous employer to persue unless they have read CD's notes and simply obtain an injunction.  If no penalties are specified then they would have to prove damage which would be difficult to do if you stayed well away from their clients.

I am not a solicitor by the way!

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31st Mar 2011 08:39

Caution observed and pragmatic approach

Just saying you won't approach clients of your former employer doesn't put you outside the agreement. If a new business starts up in the area and you take it on, then clearly you are depriving your former employer of the chance to do so. The same goes for existing businesses that decide to change from other accountants. As long as you are taking on work that they could have taken on, you are in competition with them.

You don't specify how you left things with your previous employer. If your departure was amicable and the trade restriction was simply a standard contract term then they might be open to discussion on the matter. It might be worth approaching them with your situation and plans and seeing if they would be willing to release you from that obligation. The downside of this is that it would alert them to the fact you were potentially going to breach the conditions if discussions did not go well.

The specification of 5 miles radius and 2 years does not sound unreasonable. Whilst court decisions can vary on this, it is usually only excessive restrictions that will be considered unenforcable if it comes to a legal battle.

Again, this solely comes from my experience of such contracts in operation rather than any detailed legal knowledge.

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By geoffmw
31st Mar 2011 10:01

I think

reasonableness depends on llocation.

If you were previously working in a Central London or Central Birmingham practice 5 miles seems a huge distance. Where are you based?

If you left on friendly terms I agree that a discussion with the practice  may be a worthwhile exercise.

 

In any case it would seem that you have already used up a fair proportion of the 2 year restriction.

 

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31st Mar 2011 11:46

Get it scrapped.

 

There are only narrow circumstances in which it is legal to restrain someones ability to work.  Approaching the employers clients, or taking specific knowledge to a direct competitor, are areas where restraints are legal.

However, geographical limits such as a five mile exclusion zone are not enforceable as they are not reasonable. Unless your previous employer can demonstrate that all his clients come from within that 5 mile radius, and, that every potential client in that area uses his service, the exclusion zone would be shown to be clearly ridiculous, and unenforceable.

I would suggest that you speak to a solicitor and ask that a court examine the restrictive covenant with a view to having it declared unenforceable.

 

Personally I would then set up next door to the old employer and proceed to take all his clients - or maybe I just have a vindictive streak :) 

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By wetson
31st Mar 2011 14:30

Employment contract restricts member's future

I left on very good terms and in fact my previous practice are my current employer's auditors at present. The HR dept notified me that I was actually in breach by moving to my current role but stated that they were not concerned. No penalties are mentioned in the contract.

Being in a small town, by setting up an office outside of the 5-mile radius I still feel that I'd be caught by this clause if some of my clients were based in town (which they would have to be in order for me to build up a large enough client base). The practice is the largest in town but by no means the only Chartered firm.

 

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31st Mar 2011 19:23

Not a legal consideration

"...I could not act in a similar role to that of my previous employer within a 5-mile radius for 2 years"

but breaking that clause in the agreement would at least enable your old firm to claim you were neither reputable nor honest, sullying your reputation. 

At least contact ICEAW to see whether you'd be breaking any of their rules.

Were you a partner? Did you have a practising cert? Was there a partnership agreement? Did you receive a sum of money as part of the agreement? Realistically I think you'd have to give accurate facts of the actual situation to a lawyer for advice.

Irrespective of whether you were employed, I don't think your previous employers would see things quite as cut and dried as you do.

Realistically, I think the client is looking for a reduction in fee and unless you give him that reduction he will go elsewhere.

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01st Apr 2011 15:21

This makes their position even weaker...

The HR dept notified me that I was actually in breach by moving to my current role but stated that they were not concerned.

I assume that this is because your current employer is within the current 5-mile radius of the exclusion zone (sounds like the bl**dy Falklands War).

In essence because you have already breached the contract and they have contacted you (hopefully in writing), then any attempt to enforce this would be bound to fail as they would be guilty of selective enforcement.

If they had pointed out their rights under the agreement and negotiated a compromise agreement then they would be in a different position. I am not a lawyer (honest gov!), but if you talk to any half decent employment lawyer they could get this dismissed.

The real question is - "Do you want to do this"? for the sake of the time left until the term expires, the possible damage to your reputation and the costs of defending a case against a professional company with deep pockets - do you really want to do that?

I'm up for a challenge, but in your situation would probably temporarily look for work outside the 5-mile area if that was possible. It's just less hassle that way.

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06th Apr 2011 13:37

Agree with CD

I'm not a solicitor, but in my experience, the vast majority of these restrictive clauses are unenforceable.  Almost certainly anything more than 6 months in duration would be.  I don't think you've got a problem TBH. 

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By mtyler
07th Apr 2011 00:35

Is your current firm still owed money as auditors?

Be careful of tipping off your previous firm about a potential pending insolvency. They may be owed fees, or due to carry out some work (which they would be hesitant to complete if there were concerns about being paid).

However, you could negotiate with them to ensure that outstanding amounts to them were paid before you left (could be classified as a preference payment in the event of liquidation and isn't really acceptable conduct) in exchange for them allowing you to work within the exclusion zone. This would definitely be a "commercial" settlement that you wouldn't want to document.

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By cfield
07th Apr 2011 18:30

A bribe?

Interesting solution proposed by mtyler but wouldn't that fall foul of the Bribery Act?

Chris

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07th Apr 2011 09:52

Restraint of trade

Interesting the comments. Namely that it is not enforceable. The argument being you cannot stop someone earning an income.

In admittedly a different jurisdiction the High Court held that if there was compensation paid, be it by a higher salary, severance pay or other (not necessarily monetary) it is enforceable. As to geographic exclusion they held that provided it was not onerous, each case having to be judged on its merits and it does not prevent the restrained person form earning a living, it does apply. A 5 mile exclusion was not seen as being onerous. On the contrary even if it required a move to another province or town it was still held to be reasonable (The applicant accordingly lost).

So applying the criterea set down an exclusion zone which encompasses say Surrey and London would be enforceable. You can say move to say Manchester or Berkshire.

In that jurisdiction it was viewed as a landmark case and apparently of enough importance to be used as a precedent in other jurisdictions.

So the short answer is - consult a solicitor versed in the subject.

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