Restrictive covenants and the importance of context

In Merlin Financial Consultants Ltd v Cooper, Mr Cooper was a financial adviser employed by Merlin. He had already established a considerable reputation and following before joining Merlin. When he joined Merlin he signed two contracts: the first was an employment contract, which contained a post-termination covenant preventing him from competing with Merlin for six months following termination of his employment.

The second contract was described as a ‘goodwill agreement’. Under this agreement Merlin purchased the goodwill in, and the right to receiver future income from Mr Cooper’s client base. This agreement contained a post-termination covenant by which for a period of one year after termination of his employment, Mr Cooper agreed not, in any part of the UK, to ‘be engaged, concerned or interested in, or provide financial support or management services or technical, commercial or professional advice to any other business which supplies goods and/or services which are competitive with or of the type supplied by [Merlin]’.

Mr Cooper decided to leave Merlin and set up in competition. Merlin brought a breach of contract claim against him and Mr Cooper challenged the validity of the restrictive covenant in the goodwill agreement…

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