A businesswoman who made more than £3 million from the sale of her shares in a social care company – and then promptly set up in rivalry with it in breach of a non-compete covenant – is facing a substantial damages bill.

On the sale of her shares, the woman had agreed not to compete with the company or solicit its clients for three years. However, even before her departure, she and her civil partner, who had also worked for the company and agreed to the covenant, had set up a business which operated in a similar field. They commenced trading within a year and subsequently sold their business for almost £13 million.

The company accused both women of 'blatant breaches' of the restrictive covenant. They denied that there had been any infringement, however, arguing that the two businesses served different customers and that the similarities between them were only superficial.

However, in upholding the company's claim, the High Court was entirely satisfied that the women had breached the covenant, both by competing with the company in the same geographical area and in soliciting its clients. The terms of the covenant were also reasonable, being 'no wider than necessary'.

The ruling has opened the way for the company to seek compensation from both women, either to reflect its loss of business or based upon the sum that the women could have been expected to pay to obtain their release from the covenant. The assessment of the damages award will be dealt with at a separate hearing.

Cases involving breaches of non-compete agreements following the sale of a business are common. A well-drafted agreement is an important protection for business buyers.

If you are facing a situation where an ex-employee/business partner has taken confidential information and/or is acting in breach of his/her restrictive covenants then please contact Dean Parnell on 0121 698 2200, email d.parnell@sydneymitchell.co.uk or fill in our online enquiry form.

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