(Bloomberg) -- Brokers, traders and other financial services executives may find it harder to quit their jobs for a quick move to a rival company after a landmark ruling from the U.K. Supreme Court.
The first ruling from the country's top court in this area for more than a century means that employees can no longer get out of a non-compete agreement because it contains a phrase about whether they have an interest in their new firm. The court said Wednesday that the disputed language can simply be cut, leaving the rest of the contract in place.
Thousands of senior city executives have non-compete clauses in their contracts that are likely to remain enforceable because of the Supreme Court decision, according to the law firm GQ Littler. The covenants in question are “commonplace in the contracts of senior executives across financial services and professional services,” it said in a statement about the ruling.
Employers have “dodged a bullet” with the ruling, Raoul Parekh, an attorney at the firm, said.
The controversial phrase -- that the departing employee can't be “interested in” a business that competes with their former company during a period set out in a non-compete agreement -- is unreasonable and void, the Supreme Court ruled. But employees whose non-compete agreements contain the phrase can't use it to overturn the whole deal and move to a rival before the agreement expires. Instead, employers can simply remove it from the agreements, the court ruled on Wednesday.
In the fiercely competitive world of interdealer brokers, it's not unusual for firms to take employees to court to delay their moves to rival companies. Major brokerages have frequently been in court over the issues of notice periods and the enforcement of non-compete clauses, although not necessarily over the phrase in the Supreme Court case.
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Before the ruling, many employees argued that the phrase made the whole deal unenforceable, said James Murray, an employment lawyer at Taylor Vinters in London. In doing so they were relying on a court of appeal opinion, which was challenged in the Supreme Court case.
Wednesday's judgment is “mainly of benefit to previously spurned employers who suffered a loss of key employees to another investment house or bank, or trying to set up their own outfits in competition,” Murray said. It's “shifted the balance of power back towards former employers.”
To contact the reporter on this story: Kaye Wiggins in London at kwiggins4@bloomberg.net
To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Christopher Elser
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