Court of Appeal backs restrictive covenants

Partners holding senior positions in law firms may find it difficult to worm their way out of restrictive covenants following a recent Court of Appeal ruling.

In the High Court case of Thomas v Farr plc and another (2007) the former managing director of a firm of insurance brokers was ordered to uphold the express non-compete clause in his contract, which meant he could not work for a rival company for 12 months.

Herbert Smith senior associate Daniel Ornstein, who represented insurance broker Farr in the Court of Appeal case, said it is difficult for employees to renege on non-compete clauses if it could substantially damage their former employer’s business.

The Court of Appeal ruling upheld the judgment, stating that Huw Thomas, being in a senior position, had control of the business and so knew sensitive and confidential information that could be useful to competitors if the restrictive covenant was not enforced for the 12 months stated.

“For partners at law firms the issue is more complex, however, as in essence they’re not really employees and have a peculiar status,” explained Ornstein. “The result is that a covenant against them, especially when they have high security access, would be much easier to enforce.” In the Court of Appeal case, Herbert Smith employment partner John Farr, along with Ornstein, acted for Farr, now the Erinaceous Group, instructing Selwyn Bloch QC of Littleton Chambers.

Thomas was represented by Barlow Lyde & Gilbert employment associate James Major, instructing Paul Nicholls of 11 King’s Bench Walk.