Know your contractual limits



This month the much-anticipated judgment in the case of Towry EJ Ltd v Raymond James & Ors was handed down. Mrs Justice Cox comprehensively exonerated the defendants of allegations of breach of their restrictive covenants, misuse of confidential information and conspiracy that had been brought by financial advisory firm Towry.

The claim followed Towry’s acquisition of another advisory firm, ­Edward Jones. In late 2009 seven ­Edward Jones advisers left to join Raymond James and a significant number of their clients followed. Towry claimed the advisers had “solicited” the clients and were therefore in breach of restrictive covenants.

The defendants argued that the clients had moved of their own volition and, since there was no restriction in their contracts on “dealing” with clients and no evidence of solicitation, there was no breach of the ­restrictive covenants. All claims were dismissed in their entirety.

So what lessons can be learnt from the case? First, the case highlights the importance of knowing what post-termination restrictions apply to ­potential recruits and taking the time to ensure that they are not breached.

The fact that Raymond James and the advisers had consistently taken and followed legal advice was ­described by the judge as a “striking feature” of the case and a major factor in the claims being thrown out. Having obtained advice at the earliest stages of the recruitment process they were in the driving seat when it came to the subsequent litigation.

Second, it was a material aspect of the case that Towry had fundamentally misunderstood the restrictions that applied to the outgoing advisers. Towry argued that a “non-solicitation” restriction is essentially the same as a “non-dealing” restriction. The judge rejected that argument without hesitation.

The lesson for employers here - and one that is not specific to the ­financial services sector - is that a non-solicitation restriction on its own offers little protection to the ­former employer where the adviser has strong relationships with their clients and the clients want to follow the adviser wherever they go.

In this case the advisers had ­enforceable non-solicitation restrictions in their contracts which they complied with, and the clients still transferred their business.
As obvious as this may seem, if an employer wants to stop its employees from dealing with their clients it needs to have a properly drafted non-dealing restriction. Although there is a serious question mark over the wider validity of these restrictions, given that they override the client’s right of choice, they have been ­enforced by the courts to date.

It should also be noted that Towry based its claim on inference. While that may be enough in the early stages of proceedings, something more than inference is going to be needed once a matter gets to trial.

In this case, Towry produced not a shred of evidence of solicitation and, given the compelling evidence that the clients would have moved “come what may”, it was unsurprising that the case failed.