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Commercial Agents – Restrictive Covenants

We usually hear about restrictive covenants when it comes to enforcing them in a post-employment scenario but another instance where they are commonly used is with commercial agents.

The basic principle is that post termination restrictions are only enforceable where they protect a legitimate business interest and are only wide enough to protect that business interest. Many restrictions are unenforceable because the employer or principal attempts to impose a restriction which is too wide (usually because the time period is too long or because the geographic area is too large).

A recent case, One Money Mail Ltd v (1) Ria Financial Services (2) Sebastian Wasilewski [2015] EWCA Civ 1084 explored both restrictions applying during the agency and after the agency terminated.

The Court of Appeal decided that restrictions applying during the agency agreement were always enforceable provided they did not sterilise the agent by preventing the agent from working. That was not the case here and so the Court decided that the agent was in breach of his agreement and that the competitor he ended up working for was liable for inducing him to breach his agreement.

In respect of the post termination restrictions, the Court of Appeal decided that, given the investment made by One Money Mail in terms of training, a 6 month non-compete within a 5 mile radius was enforceable, even though One Money Mail had always retained the right to appoint other agents within that geographic area. Having succeeded is proving that its agreement was enforceable One Money Mail had however failed to be able to quantify any financial loss it had suffered as a result of the agent’s breach and so received no monetary award.

If One Money Mail had acted quicker upon finding out the agent’s breach, it may well have been able to obtain an injunction to prevent the agent from breaching the agreement but as it is, One Money Mail spent a lot of time (and presumably expense) clarifying the law for the rest of us but also showing how difficult it is to prove financial loss in these sorts of claims.

If you are an agent who wonders whether your agency agreement’s restrictions are too wide, or you are a principal who is concerned about the activities of your agent, it is worth taking advice now to see what your rights and responsibilities are.

For further information or advice on agreements please contact Nina Wilson or for advice on disputes please contact Kevin Rogers.