Thomas v Farr Plc & Anor
February 20, 2007
COURT OF APPEAL (CRIMINAL DIVISION)
United Kingdom
CORAM
- LORD JUSTICE CHADWICK
- LORD JUSTICE SCOTT BAKER
- LORD JUSTICE TOULSON
Areas of Law
- Employment Law
- Contract Law
February 20, 2007
COURT OF APPEAL (CRIMINAL DIVISION)
United Kingdom
CORAM
AI Generated Summary
The Court of Appeal addressed whether a 12-month non-competition covenant in the employment contract of Mr Thomas, managing director of Farr, an insurance brokerage specializing in social housing, was an unreasonable restraint of trade. Thomas resigned amid an Erinaceous Group restructuring, alleging repudiatory breach and potential demotion, and chose to join a new competitor entering the social housing insurance market in England and Wales, where Farr held about one-third market share. As managing director, Thomas had access to strategic and operational confidential information, including budgets, business plans, pricing and facility management fees, and business development strategies. The High Court (Ramsey J) upheld the non-compete; Thomas appealed. The Court of Appeal held that Farr had legitimate interests in protecting trade secrets and highly confidential information, that non-solicitation and confidentiality covenants were inadequate, and that the sector-limited scope and 12-month duration were reasonable, dismissing the appeal.
Judgment
Lord Justice Toulson:
This case is about the enforceability of a clause in a contract of employment of a managing director of a firm of insurance brokers, prohibiting him from competing with the company for 12 months after the termination of his employment. The issue is whether it was an unreasonable restraint of trade.
The Parties
Farr is an insurance broker which specialises in providing services for providers of social housing, in particular housing associations. Before he joined Farr, Mr Thomas had been employed in the insurance industry for about 10 years and was running an established regional brokerage with a general insurance business. He had no previous experience of the social housing market, but, as he said in one of his witness statements, “In whatever sector one works, the same skills are required in order to be a good insurance broker”.
Mr Thomas began his employment with Farr as an account director, responsible for managing key client relations. After 18 months he was appointed a director. In 2000 he was appointed operations director. In December 2003 he was appointed managing director.
When Mr Thomas joined the company, Farr formed part of FMW International Insurance Brokers Limited. In 2000 the group was sold to Hercules Property Services PLC, which in turn was acquired in 2004 by Erinaceous Group PLC (“Erinaceous”). On 1 July 2006 there was a restructuring of Erinaceous’ business under which the business of Farr was transferred to Hanover Park Commercial Limited another subsidiary of Erinaceous.
Mr Thomas terminated his employment with Farr by a letter dated 27 April 2006, because he was unhappy about the consequences of the proposed restructure on his employment and he contended that Farr was in repudiatory breach of contract. At the time Mr Thomas was on a salary of £176,900 and had the benefit of a bonus scheme which meant that he earned sums well in excess of his annual salary. He saw the proposed restructure as involving a demotion and potential loss of income.
Mr Thomas received approaches from a number of potential employers. He decided to accept an offer from a company which intended to compete with Farr. Farr had about one third of the market share of housing association work in England and Wales. The company which Mr Thomas proposed to join was a new entrant to the market.
The insurance market in social housing is a small and specialist market. There are in all about 1500 housing associations, of whom 350 were