Damages for Breach of a 12-Month Non-Compete Covenant

In Merlin Financial Consultants Ltd v Cooper [2014] EWCH 1196, the High Court awarded damages to an employer where the employee had breached a 12-month non-compete covenant in a business (rather than employment) agreement.

Mr Cooper worked as a financial advisor for Merlin Financial Consultants Ltd ("Merlin").   When he joined, he signed a "goodwill agreement" under which Merlin had purchased the goodwill in the client base Mr Cooper had developed over his 23 years' experience in the financial sector.  The goodwill agreement contained a covenant which prevented Mr Cooper from competing with Merlin for 12 months after his employment ended.  Mr Cooper resigned to work for his own financial services company and told Merlin that he intended to continue to work for the clients he had brought to Merlin. 

Merlin brought proceedings against Mr Cooper for breach of the non-compete covenant and claimed damages for loss of business.  The High Court found that the covenant was enforceable and awarded damages, primarily because the goodwill agreement was akin to a business agreement entered into by parties of comparable bargaining power, and because Mr Cooper had a very strong relationship with his client base.  The Court disagreed with Mr Cooper's argument that Merlin should have mitigated its loss by putting him on garden leave or seeking injunctive relief, rather than just seeking financial compensation.

This case highlights the courts' increasing willingness to enforce long non-compete covenants, particularly in the financial sector where individuals have a loyal client following.  Employers should bear this in mind when taking on senior employees.