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Restrictive covenant placed on MD ‘reasonable and enforceable’ ...

Restrictive covenant placed on MD ‘reasonable and enforceable’ ...

Restrictive covenant placed on MD ‘reasonable and enforceable’ ...

Posted: 12/05/2022

A veterinary company has successfully used a restrictive covenant to prevent its former managing director contacting its clients with a view of taking them to his new business.

Rebecca Armstrong Associate Solicitor reports on this recent case.

The case involved Eville and Jones (Group) Ltd and Aldiss.

As managing director, Aldiss was responsible for the day-to-day running of the business and held a 5% share in the company.

He signed a shareholders’ agreement restricting his business activities for a period of 18 months following cessation of the agreement.

The restrictions prohibited him from being involved with any competing business, soliciting or accepting the custom of the company’s clients, and soliciting or employing the company’s staff.

In 2020, he was summarily dismissed. Eville alleged that there was a large amount of documentary evidence to show that, within the restricted period, Aldiss was comprehensively involved with a competitor and had misused the company’s confidential information to poach clients and staff.

It asserted that he had no reasonable prospect of successfully defending the allegations.

Aldiss submitted that the covenants were unreasonable and therefore unenforceable, particularly given the length of the restricted period, and it was a matter that could only properly be determined at trial.

He also disputed the extent of his involvement in the alleged rival businesses and whether their work was in fact in competition with work done by the company.

The High Court ruled in favour of Eville.

It held that Aldiss had no real prospect of successfully arguing that the restrictive covenants were unreasonable. Although he had held only a small shareholding in the company, it was significant that his senior role placed him in a position to know all the confidential matters relating to its business.

The court was satisfied that both the restrictions themselves and their duration were no more than was adequate for the purpose of protecting the company’s legitimate interests.

If you would like more information about the issues raised in this article, please contact Rebecca on 01228 516666 or click here to send her an email.