Marketing firm’s post-termination covenant ruled unreasonable

A marketing company has been told that the post-termination covenant in a contract with one of its former suppliers was not enforceable because it prevented fair competition.

Mark Aspin Director and Head of Dispute Resolution reports on this recent case.

The case involved Mr Lambert, who ran his own business, and Credico Marketing Ltd.  

Credico operated by entering into trading agreements with independent sales advisers or the company they represented, and those entities performed marketing activities for commission. 

It provided the sales agents and their companies with guidance and advice about how they should run their businesses, and various “back-office” services. 

The agents paid for this service and the contract obliged them to work exclusively for Credico Marketing without a promise of a particular amount of work.  

Clause 21 of the trading agreement comprised two non-competition covenants, the first for the period of the agreement and the second for a six-month post-termination period. 

Agents had to personally guarantee their trading agreement obligations and agree that clause 21 was personally binding on them. 

In the autumn of 2020, after his contract with Credico expired, Lambert and his marketing company performed work for another organisation. Credico maintained it was an infringement of clause 21. 

A judge concluded that both covenants in the trading agreement were enforceable. He granted an injunction to restrain Lambert’s post-termination activities. 

However, the Court of Appeal overturned that decision. 

The judge had been wrong to find that Credico Marketing’s investment of time and resources in Lambert justified the imposition of this covenant. 

There could be no reasonable expectation of exclusivity from Lambert once the agreement was lawfully terminated. 

Employees were free, following dismissal, to use general knowledge and experience gained during employment with a new employer, even with a competitor. 

A covenant restricting such use was only permissible if there was some factor rendering the knowledge and experience special so that it would be unjust to use it. 

If you would like more information about the issues raised in this article please contact Mark on 01228 516666 or click here to send him an email.