Home Knowledge 12-month Restrictive Covenant Enforceable Against Employee

12-month Restrictive Covenant Enforceable Against Employee

Less than a year after he commenced employment with Romero Insurance Brokers Limited, an employee was informed that his role was at risk of redundancy due to a restructuring within the organisation. He resigned upon hearing this and commenced employment with a new employer almost immediately afterwards, bringing a number of his clients with him. Romero commenced proceedings against him to enforce the restrictive covenant in his contract which prevented him from soliciting the business of Romero clients with whom he had dealings in the 6 months prior to his termination.

At the hearing, it was accepted by both parties that this covenant was a restraint of trade. It therefore followed that in order for it to be enforceable, Romero would have to establish that the covenant was “reasonable” and necessary to protect a “legitimate business interest”.

The Court accepted that the legitimate business interest of the covenant was to give Romero time to build a connection with those clients previously looked after by the employee. The main question for consideration was whether the 12-month period went further than was reasonably necessary to protect that interest.

Whilst 12-month restrictions are usually difficult to enforce, the Court recognised that the time for making client connection was at, or leading up to, the renewal date which, for most insurance contracts, occurs annually. When assessing the reasonableness of the provision the Court also had regard to other factors including the fact that it is common to have a 12-month restriction period in the insurance broking business and that the employee’s previous employment contract and his contract with his new employer also had 12-month non-solicitation provisions.

The Court ultimately concluded that it was reasonable for Romero to seek to protect their client connections for 12 months and so the clause was enforceable.

This is a welcome decision for employers, particularly in the insurance industry, as it signifies a readiness to enforce longer restrictive periods in certain circumstances, and it will no doubt hold persuasive authority in the Irish Courts.

Contributed by Louise Moore and Catherine O’Flynn.