In AFH Independent Financial Services Ltd and another v Baker and another, the High Court considered several issues arising from a dispute between a financial services group and a self-employed independent financial adviser who left to join a competitor. The adviser challenged the enforceability of post-termination restrictive covenants, while the court also had to decide whether other companies within the group could enforce those covenants where they were not parties to the contract.
The court held that only the contracting company could enforce the restrictive covenants. Although the agreement purported to give each group company the benefit of the restrictions, the adviser qualified as a "worker" and section 6(3) of the Contracts (Rights of Third Parties) Act 1999 prevented third parties from enforcing the terms of her contract. The court also rejected an alternative argument that the covenants could be enforced through a trust of a promise.
Turning to the restrictions themselves, the court upheld a 12-month non-solicitation covenant, accepting that annual client review cycles meant a shorter restriction would not adequately protect the business. However, it found the corresponding non-dealing covenant to be an unreasonable restraint of trade. The employer's own evidence showed that clients generally remained with the firm unless actively solicited, meaning the non-solicitation covenant already provided sufficient protection. The court therefore...
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