Law by Design v Ali  EWHC 426 (QB)
This month the High Court in England decided that a non-compete restrictive covenant in a service agreement could prevent a solicitor from joining a competitor. (Read the full judgment here)
The Claimant began working for Law by Design in 2013, becoming a shareholder in 2016. She entered into separate shareholder and service agreements, both of which contained restrictive covenants.
A non-compete clause in the service agreement prohibited her from being involved in any business which was in competition with the parts of the firm with which she had been involved for a period of 12 months following departure. The shareholder agreement was somewhat wider in its terminology and prevented her from being engaged in any business that competed both directly and indirectly with a business of the company in the territory that the business had operated in within the last year. In practice, this would have prevented the Claimant from working anywhere in England and Wales for a 12 month period following her departure.
The claimant refused to accept an undertaking regarding these clauses when she left the respondent in May 2021. In reaching its decision the High Court applied the four-stage test set out in TFS Derivatives Ltd v Morgan  EWHC 3181 (QB).
1. The court must decide what the covenant means when properly construed.
2. The court will consider whether the former employers have shown on the evidence that they have legitimate business interests requiring protection in relation to the employee’s employment.
3. Once the existence of legitimate protectable interests has been established, the covenant must be shown to be no wider than is reasonably necessary for the protection of those interests.
4. Even if the covenant is held to be reasonable, the court will then finally decide whether, as a matter of discretion, whether the injunctive relief sought should in all the circumstances be granted, having regard, amongst other things, to its reasonableness as at the time of trial
In considering the test the court found that the shareholder agreement was wider than what was reasonably necessary to protect legitimate business interests and could not be enforced. The service agreement was however deemed enforceable as it was held to be drawn no wider than was reasonably necessary.