The case of BCM Group PLC v Visualmark Ltd & Anor highlighted some important points regarding commercial agents and restrictive covenants.

In the case, the agent, a seller of office equipment, disputed a restrictive covenant in his contract which read as follows:

16.1 The agent agrees that the agent will not following the termination of this agreement for whatever cause:

16.2 Within the period of one year thereafter carry on or be engaged in any business which trades from an office situated within a radius of 20 miles of the company’s trading address and competes with the business of the company as at the date of such termination.

16.3 Within a period of two years thereafter the agent will not thereafter canvass, approach or solicit the custom of (in respect of any business which competes with the business of the company as at the date of such termination) any person, firm or company who has, during a period of one year prior to such termination been a customer of the company.

It was this last clause that the Court was asked to consider. The agent argued that it was not enforceable, as the two-year restriction period was too long and the scope of the interests it was trying to protect was too wide.

In deciding the case, the Court considered each of these points in turn.

When considering the two year restrictive period, the Court quickly found that this measure was enforceable. Both parties had originally agreed to it, and the Commercial Agents Regulations specifically state that a “restraint of trade clause shall be valid for not more than two years after termination of the agency contract”.

On the second point, however, the matter was by no means as clear-cut. The Court took into account previous case law that had applied in similar situations between employers and employees. In this context, the covenant was certainly so strict as to be unenforceable, as the agent could have infringed the clause unknowingly, as he had no way of knowing whether the people he dealt with had been former customers of his previous principal.

The Judge determined that it was unlikely that an agent, who was not tied as strongly to his principle as an employee is to an employer, should have greater restrictions placed on him than an employee could expect in similar circumstances. It was therefore ruled that the clause was unenforceable.

The fact that the Court in this case was willing to draw a parallel between agents and employees should help to bring a welcome degree of clarity to the question of what is and what is not enforceable in a restrictive covenant clause.

Technorati Tags: Commercial Agency, Employment Law, Restrictive Covenant