High Court Enforces Partnership Agreement Non-Compete Clause

Validly restricting the post-termination conduct of employees and partners involves striking a careful balance between business protection and personal freedom, and that is why professional drafting is indispensable. An instructive case on point concerned a partner in a professional services firm who was banned from joining a competitor for six months following his retirement.

After the firm approved the man’s retirement, he was placed on gardening leave for nine months prior to the date of his retirement. Thereafter, for a further six months, a clause in the firm’s membership agreement forbade him from joining as a partner or member any business in competition with the firm or other firms connected to it, either in the UK or overseas.

About a month after the end of his gardening leave, the man announced his intention to take up a post with a competitor. The firm was concerned that his senior role had given him access to its confidential information and sought an injunction to hold him to the terms of the membership agreement. The man argued that the non-compete clause was invalid in that it was too broad in its scope and unfairly prevented him from making a living. He also submitted that the six-month period, when combined with the period of gardening leave, was unreasonably long.

In granting the injunction sought, however, the Court noted that the dispute in respect of the validity of the non-compete clause had been referred for resolution by an arbitrator under the terms of the membership agreement. That arbitration could take place speedily, and in any event before the expiry of the six-month period.

The Court observed that the man had been paid a substantial sum of money whilst on gardening leave and was aware throughout that the firm was seeking to enforce the non-compete clause. The firm had presented an arguable case that the order was necessary to protect its legitimate interests in maintaining confidentiality. It had established a serious issue to be tried and the balance of convenience also fell in favour of the injunction being granted.

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