'I had been an employee of A for several years, when A decided to close my department and outsource its functions. B when tendering for the outsourcing had to guarantee to provide a percentage from a list of named personnel before they were awarded the contract. I was one of those names, and worked through B as a contractor. One year on, A has now given the outsourcing contract to C, which wants to use me as a contractor, still working for A. B is threatening to sue me for breach of a restriction, saying I can only work for A through them.'
We need to consider the restriction in the light of the whole contract, and also the surrounding circumstances, particularly as they were when the contract was signed.
The starting point is to look at who the parties to the contract were, and what the restriction actually said. In this case, the parties to the contract were B, and your company. The restriction said that your company for 12 months after the contract ended:
'shall not provide either directly or indirectly services for A other than through the agency of B…'
Words used here have their ordinary English language meaning, subject only to any particular definitions in the contract; because the term is, on the face of it, in restraint of trade, any ambiguity is likely to be construed in your favour.
Here, there is no ambiguity, and (like a certain DIY product whose advertising claims it does exactly what it says on the tin) the words mean what they say, no more, and no less. Your company (not you) is the party to the contract, and your company agrees that for the stated period it will not provide services to A other than through B. It says nothing about what you yourself will, or won't, do. You are not even a party to the contract. The natural meaning of the term is that it is only your company which is so restricted. Acts by you personally (or by another unconnected company) which do not involve the company which entered the original contract are wholly outside the scope of the term.
We might also consider whether or not, if the term had been worded in such a way as to appear to bind you personally, it would be effective.
The law tries to strike a balance between encouraging trade - from which it is considered that the economy and the country as a whole benefit - and protecting the interests of individual businesses from unfair competition. Competition is thought to be a Good Thing, unless it is unfair in some way that is recognised by the law.
Here, the term is clearly in restraint of trade. Past decisions of the Courts make clear that a term in restraint of trade will only be regarded as enforceable to the extent that it goes no further than is reasonable for the protection of B's legitimate commercial interests.
The interests that the law recognises as being legitimate for these purposes fall into three types: trade secrets, confidential information, and business connections. Here, I doubt very much whether you would be in a position to abuse either B's trade secrets, or confidential information - if they even exist, I doubt whether or not you would have acquired them. So we are left with the question of whether or not B has a business connection with A which is capable of protection by such a term.
I would say the answer to that is 'no', for two reasons. First, it was because you had previously been an employee of A that you were approached by B and offered the contract in the first place - indeed, had you and your colleagues not accepted such offers, B themselves would not have got the contract from A. You had your own business connection with A, wholly independent of B's connection. Thus I would say that for you to deal with A now (either directly, or through C) could not possibly be taking unfair advantage of any business connection B might have with A. It may be all very well for B to try and protect its own business connections, but that should not go so far as to prevent you from making use of your own independently developed business connections - particularly as they had come into existence before B's in any event!
Secondly, A has already declared its intention of not renewing its contract with B. This quite clearly says to me that any business connection which B might once have had with A no longer exists. And if there is no such business connection, then the remaining thing which might have justified the restriction in restraint of trade disappears.
7th August 1998
I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.
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