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Restrictive Covenants and Solicitors/Law Firms

Restrictive Covenants and Solicitors/Law Firms

It is common for firms of Solicitors to have restrictive covenants in the contracts of employment of their staff. Clearly, Solicitors have a legitimate business interest in protecting their confidential information and client and referrer connections.  Courts will often be persuaded to uphold post termination restrictions preventing departing lawyers from soliciting and dealing with clients for periods of between six and twelve months, provided such covenants are drafted in the correct way.  Indeed, partners of law firms may be held to even longer periods of restriction.  In one case a Solicitor was held to a post termination restrictive period preventing him from joining another law firm for a period of five years (Bridge v. Deacons [1984] 1AC 705, PC).  What mattered in that case was that the Solicitor was also an equity partner in the firm.

Some Solicitors have attempted to argue that restrictive covenants preventing them from acting for clients once they leave their firm, breaches a client’s freedom to instruct a Solicitor of their choice.  However, in the case of Allan James LLP v. Johal [2006] EWHC 286 (Ch), the High Court held that Solicitors are not a “special case” and that a post termination non-dealing covenant was reasonable and enforceable as against a departing Solicitor.

Great care needs to be taken in drafting restrictive covenants in the legal profession.  Many employers fall down as a result of sloppy and imprecise drafting which leads to covenants being held to be unenforceable.  As most firms rely upon goodwill and repeat business from clients, it is essential that law firms ensure their restrictive covenants are regularly reviewed and updated.

There has been a trend in recent years for some law firms to consider additional ways in which they can protect themselves against unfair competition from departing lawyers.  One trend has been to include a ‘repayment of training fees clause’ in contracts of employment.  These can operate in such a way that if a Solicitor or fee earner leaves a firm within a period of time after completing a training course or courses, they will be required to repay a proportion of the relevant training fees.  Sometimes this will act as a disincentive for a lawyer to leave.  It has often been argued that such provisions can effectively amount to an unlawful restraint of trade.  However, most cases in this area involve consideration of whether or not the repayment clause is, in itself, an unlawful penalty clause.

One recent case, however, opens the door for an even greater level of protection for law firms.  This was the Court of Appeal decision in the case of Harcus Sinclair LLP v. Your Lawyers Limited [2019] EWCA Siv 335.  In that case the Court of Appeal found that a ‘non-competition’ clause contained within an agreement between two firms of Solicitors was unenforceable as an unreasonable restraint of trade.  However, the decision did not prevent Harcus Sinclair from relying upon a separate Solicitor’s undertaking not to compete with them.  This raises the issue of whether a Solicitor could be required to provide an undertaking to his or her firm not to solicit or deal with clients for a particular period of time in addition to the usual array of restrictive covenants that may be found in a contract of employment.  Whether this strategy would work in practise would involve consideration of a complex area of law.  As the Court of Appeal commented in the Harcus Sinclair case, the Court’s supervisory jurisdiction over Solicitors to enforce undertakings is confined to Solicitors acting as Officers of the Court.   I am unaware of any reported case where a law firm has been able to enforce such an undertaking as either a professional conduct issue or an action through the courts.

For further information on restrictive covenants please click here

Did you know that Linder Myers offer a unique retained legal services package for Solicitors called “Employ-Line for Solicitors” which covers not only the drafting of contracts of employment for the staff of law firms, but also the drafting of restrictive covenants.  For a fixed fee, we can also provide advice to employees on the enforceability of restrictive covenants in their contracts of employment. Please click here to download our Employ-Line brochure

If you would like more information on Restrictive Covenants, please do not hesitate to Call Us on 0800 042 0700, or email us on enquiries@lindermyers.co.uk

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