Non Solicitation/ restrictive covenants

[klos]

Hi I wonder if you can help I am a little lost and feel like the underdog being bullied! Apologies for being a little vague, I don't wish to give exact details.

Here's the situation

I was employed at 'Company A' for the period of 11 months and 2 weeks. My contract was terminated because I worked remotely and 'Company A' wanted to employ someone in house. 'Company A' supplies goods to 'Company B'. 'Company B' is a large retail outlet selling multiple brands ('Company A' supplies 5 of these brands, which I worked on). On termination I asked 'Company B' for a reference as 'Company A' refused to give me one. In response 'Company B' asked to meet to discuss the possibility of working freelance for them on 1 or possibly more of the other brands they sell in their retail outlet. I have no intention to disrupt 'Company A's' relationship with 'Company B' I just need a job.

My contract with 'Company A' has a non Solicitation and Restrictive covenants section. As seen below. I really need some advice as to where I stand legally and what might be the subsequent consequences. Specifically can someone answer the following:

- If I meet with 'Company B' and accept freelance work from them does this constitute a breach of contract and if so what can 'Company A' do?

- If this went to a court (if that is where these things go) how does that work/ what would happen/ where can I get free legal advice?

- Because Company A terminated my employment before 1 year of working with them do these restrictions still apply to me?

- What would you do if it was you!

- Any further advice about this would be really welcomed I just want to get back to working and not deal with this

Non Solicitation

The employee will not during the term of his/ her employment or for a period of six months afterwards for any reason attempt to solicit or accept work for private gain on his/ her own behalf and/ or for any other individual, firm, corporation or company who within the period of 6 months before the termination of his/ her employment have been a client or customer of 'the company'. The employee shall not attempt to interfere with the existing business relations between any client or employee of 'the company' and at no time during the term of his/ her employments or for 6 months after the termination of his/ her employment for any reason will the employee approach any other employee of 'the company' with a view to him/ her ceasing to be employed by the company or for the purpose of enticing away or employing him or her.

The employee agrees that the restrictions set out above are fair and reasonable and necessary to protect the illegitimate business interests of 'the company'. In the event that any part of this clause shall be found by a court to be unreasonable or unenforceable or void that part shall be severed and the remainder of this clause shall be enforceable with such deletion or modification as may be necessary to make it effective and for such a period as is found to be reasonable and valid in substitution for the period or periods contained within this clause.

Restrictive covenants

The employee shall not except with the consent in writing of the managing direct for a 6 month restrictive period:

- Solicit custom from, deal, or transact business within the field of business in competition with the company from or with any of the companies customer's clients agents or prospective customers

[Willapp]

I am not an expert but I believe in most cases these situations boil down to whether 'Company A' could prove they have/would suffer a financial loss as a result of you entering a business arrangement directly with 'Company B'. If not I think the likelihood of it getting to court is pretty minimal, worst case if they found out you might get a letter from their legal department advising that you are in breach of your contract.

A common point made on these sort of threads is whether 'Company B' would still want to offer you work if they were aware of your contract terms with 'Company A', for fear of getting dragged into any sort of legal dispute. Having said that I think in practical terms it depends on how much 'Company A' depends on 'Company B' (or vice-versa), since Company A are unlikely to get too vocal with Company B if a significant amount of their business is dependent on them.

I would say the safest option is to find work elsewhere, but if the opportunity with Company B is significant and you felt it was worth the potential hassle then that's up to you.

[unemployed]

I like "Company B" but i also like "Company A" but which one`s best ?

FIGHTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT

[northernladuk]

There was a long thread on this recently (and many older ones) where the boundries were explained. I have to say Willap seems to more or less hit the nail on the head.

Even if there isn't financial loss the middle man will often put the spanner in the works and scare off the end client. The end client won't want to get embroiled in a legal issue and prefer just to walk away from it. I would hazard a guess that this is a more common situation and it going legal is a very rare occurance.

There is always the factor that the end client won't give a stuff as long as they get you and will fight your corner, it is hard to say. You need to get a feel of the mood between the two to make a good decision.

An argument in your defence could be the type of work you are doing. Restrictive covenants are there to either protect the agents revenue or to stop you taking knowledge from one client to a similar one. If the work you are doing is completely different the knowledge transfer isn't an issue so can be worked out without going legal or costing you the role.

Really hard to say and at the end of the day comes down to your knowledge of the two companies. If co A will lose out with you going to B then yes you are in a dodgy situation. If not, maybe you can work it out amicably and see if they will waive the covenant...

Don't stop looking for work elsewhere, with a bit of luck something will come up and the issue will just disappear.

[TheFaQQer]

Non Solicitation

The employee will not during the term of his/ her employment or for a period of six months afterwards for any reason attempt to solicit or accept work for private gain on his/ her own behalf and/ or for any other individual, firm, corporation or company who within the period of 6 months before the termination of his/ her employment have been a client or customer of 'the company'. The employee shall not attempt to interfere with the existing business relations between any client or employee of 'the company' and at no time during the term of his/ her employments or for 6 months after the termination of his/ her employment for any reason will the employee approach any other employee of 'the company' with a view to him/ her ceasing to be employed by the company or for the purpose of enticing away or employing him or her.

The employee agrees that the restrictions set out above are fair and reasonable and necessary to protect the illegitimate business interests of 'the company'. In the event that any part of this clause shall be found by a court to be unreasonable or unenforceable or void that part shall be severed and the remainder of this clause shall be enforceable with such deletion or modification as may be necessary to make it effective and for such a period as is found to be reasonable and valid in substitution for the period or periods contained within this clause.

(Is that a typo in the first sentence of paragraph 2 - illegitimate business interests???)

Have you breached the clause? You did nothing within the term of your employment. You have not solicited work from B - you asked them for a reference, and they asked you if you would be interested in working with them. You are not attempting to interfere with their business relations, and you aren't attempting to poach anyone from them.

That said, you could accept work from them which would breach the clause since it also expressly prohibits you working from someone else who works for the B.

Restrictive covenants

The employee shall not except with the consent in writing of the managing direct for a 6 month restrictive period:

- Solicit custom from, deal, or transact business within the field of business in competition with the company from or with any of the companies customer's clients agents or prospective customers

I think that's a harder clause for A to argue is valid. How can they prevent you from working with someone who might be a client in the future?? How large is company A? If they are in many fields, then any reasonable judge would strike that out because the clause prevents you from working with any company which works with A, or might work with A in the future. If they are a big company with lots of current and prospective clients, then it would be ridiculous to have that clause because it would effectively prevent you from working.

- If I meet with 'Company B' and accept freelance work from them does this constitute a breach of contract and if so what can 'Company A' do?

If you accept work from B, I think that it probably breaches the non solicitation clause but not the restrictive covenant clause. You aren't soliciting work (which having a meeting would be), you are responding to their solicitation. However, if you accept the work then that would breach the contract.

If A found out, then they could try to take out an injuction to prevent you from working with B (unlikely to be granted, unless you are really senior), or they could sue for damages. If they did that, then they would have to prove that they had the opportunity to do your work, and that you working with B has cost them money. They can't just say "we've got a non solicitation clause, give us £10k", they need to prove how much your working with B has lost them - if B were to say something like "well, we weren't going to work with A anyway once klos left" then their case kind of dies because there is no loss.

- If this went to a court (if that is where these things go) how does that work/ what would happen/ where can I get free legal advice?

A would sue you. A might sue B as well (they may well have a more restrictive clause), and A might sue whoever you are working through (umbrella or Ltd). You would get a series of letters from solicitors and then, if necessary, court paperwork to appear. You then appear in court and argue your point. Depending on the amount of money, it may just be a small claims court, which is a lot less formal. I think you can get free legal advice from citizens advice bureau, but I'm not sure. Check any insurance policies you have - some give a free legal helpline which you can call for any issues. If you are going to freelance anyway, then you could join the PCG and then call their legal advice line to ask them what to do.

- Because Company A terminated my employment before 1 year of working with them do these restrictions still apply to me?

I don't see why not. Unless there is anything else in the contract which says something to this effect. I don't know, though - maybe Google it and see.

- What would you do if it was you!

Look for something else to do.

- Any further advice about this would be really welcomed I just want to get back to working and not deal with this

Jumping into freelancing because you are out of work is not necessarily the right thing to do. It's a mindset that you really need to get round - are you prepared to be out of work regularly if the market tanks? If you can't find work quickly, how long can you survive financially? Are you prepared to run a company - or do you know what options are available to you? Is there a good enough contract market for what you do for it to be worthwhile? Make sure you read the first timers guide before you jump into the unknown - it's not necessarily an easy life, so you need to be prepared for it.

You may find that once you get into negotiations with B, they find that they have a non-solicitation clause as well, and if they become aware of any potential problems with taking you on, then they may well just decide that it's easier for them to drop you rather than risk a legal fight.

Good luck with it, whatever happens (and welcome )

[SueEllen]

Klos I've known quite a few people who were permies asked by other client companies, either as contractors or as permies to work for them once they left their employer.

They had similar clauses in their contracts and even in the case of their ex-employers who only had 3 main clients the former employer left them alone.

The reason for this is that if you as a company only have a few major clients, and get into a fight with your major clients over one staff member you risk losing a larger contract or series of contracts.

With employers who had multiple clients if you go and work for one of their clients and it gets dragged to court then I've been told by more than lawyer including a highly regarded barrister such a restriction of trade clause would get struck out.

However I suggest in your case if company A doesn't have many clients you get company B to inform them that you will be working for them. (It's better them doing that than you doing it.) If company A kicks up a stink then company B won't engage you.

[klos]

Thanks.

Hi everybody thanks loads for answering my question, i'm thinking Company A cant really enforce the restrictive covenants, in my case. I think therefore i might write them a letter asking them if i can be released from this covenants clause. Does any one have any advice on the best way to approach for this letter, i didn't want to be too threatening ie... you cant impose this on me, it wont stand up in court. And more friendly ie any chance you can release me as i'll probably work for them and i don't really want to get into a legal battle just to get a job.

Thanks again and enjoy your weekend... it's mr sunny time.

Klos