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Twelve month restrictive covenant upheld for insurance industry

AUTHOR(S): Bryan Dunne
PRACTICE AREA GROUP: Employment, Pensions and Benefits
DATE: 24.09.2013

Romero Insurance Brokers Limited v Templeton
[2013] EWHC 1198

A recent decision of the English High Court, which will no doubt be considered by both employers and the courts in Ireland, has held that a twelve month non-solicitation period for an insurance broker will be enforceable, based on the typical twelve month renewal cycle in many insurance contracts.  

When Andrew Templeton resigned from his employment with Romero, after he was notified that his role was being put at risk of redundancy, he began working at another insurance company the very next day, bringing a number of ex-Romero clients with him. This was in breach of a clause in his contract restricting him from soliciting clients or doing business with clients of Romero with whom he had had dealings with in the six months leading up to his termination, for a twelve month period post-termination. Romero then issued proceedings against him in order to enforce the restrictive covenants contained in his contract of employment and to prevent him taking such steps.

The primary issue before the court was whether the twelve month non-solicitation covenant was valid. The court found that the covenant was reasonable, taking into account the fact that the legitimate purpose of the covenant was to give Romero time to build a connection with clients who had previously been looked after by Mr Templeton.

Generally speaking, restrictive covenants imposed for twelve months can be difficult to enforce, as such covenants should provide for no greater a degree of protection than is reasonably necessary. However, in this case, the court commented that, as most insurance contracts are renewed on an annual basis, and as such the client contact and opportunity to establish a new relationship was a once a year occasion only, this was a relevant factor in determining the question of just how long a period was reasonably necessary to protect the trade connection. The court found that a restraint of twelve months was therefore not unreasonable, due to the particular nature of the insurance business.

What may be deduced from this case is that the frequency of renewal periods will be a key factor in assessing enforceability. This is a helpful decision for employers in the insurance sector. What is also noteworthy from the judgment is that while the court upheld the twelve month covenant, it specifically stated that it would not have upheld a longer clause.  No doubt the logic on this point was that in order to cover the next occasion of client interaction, the covenant would have to be imposed for two years, which in any business would be considered excessive. The court also commented that twelve months is common in the insurance broking business in contracts with other broker employees.

For further information please contact the authors Bryan Dunne or Jill Pilkington.

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