12 Month Non-Solicitation Covenant Upheld
A twelve month restriction on soliciting customers in a senior insurance broker’s contract was enforceable.
In Romero Insurance Brokers v Templeton, T was a senior insurance broker who was recruited to manage a new branch for Romero in Halifax. He had developed strong relationships with clients and Romero hoped many of his clients would follow him. T agreed to enter into restrictive covenants which included a 12 month restriction on soliciting anyone who was a customer of Romero in the six months immediately prior to the termination of his employment. The covenant was limited to those customers with whom T had dealings and only applied to soliciting customers for the purposes of a competing business.
When T’s employment terminated, he joined a competitor the next day. A large number of Romero’s clients subsequently followed him and Romero sought to enforce the restrictive covenant. T argued that a 12 month restriction was too long and therefore unenforceable.
The High Court disagreed. Twelve months is often seen as standard in the insurance industry because policies are generally renewed annually. Renewal periods are a factor which can be taken into account in assessing enforceability. The covenant was also in line with what T expected when he joined Romero and it was also similar to a covenant in his contract with his previous employer which he had observed on joining Romero, having taken legal advice on its enforceability. Any period longer than 12 months would have been unenforceable.
An employer can only enforce a restrictive covenant if it protects a legitimate business interest and only where the covenant goes no further than is reasonable to protect that interest. The purpose of the covenant in this case was to give Romero time to build a connection with clients who had been looked after by T. The fact that insurance contracts came up for renewal annually was a relevant factor in concluding that it was reasonable to stop T from soliciting Romero’s customers for twelve months.
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