UK: Recent case on non-competes in agency agreements.

Edward MILLER | UK | 2016-01-19

Edward MILLER

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In One Money Mail v RIA and Wasilewski, One Mail, a money transfer service, appointed an agent under an agreement which prevented the agent from working for any other money transfer business during the term of the agreement, and also prevented him from being involved in such a business during six months after termination, within a five mile radius of the place where the agent had operated for One Mail, using clients, contacts of employees who had been involved in business for One Mail.

 

Reversing the decision of the lower court, the Court of Appeal held that both the pre- and post-termination restrictions were valid. 

 

A restriction during the term of the agreement which prevented the agent from working for another principal could only be held to be in restraint of trade if it effectively “sterilised” the agent from working.  This was not so in the case of the agreement with One Mail as, in particular, One Mail were obliged to process all money transfer requests obtained by the agent and pay him commission.  The conclusion that the pre-termination restriction was not in restraint of trade was also not affected by the fact that One Mail had the right to appoint other agents in the same territory, or that the contract could be terminated by One Mail on short notice.  Because the pre-termination restriction was not in restraint of trade, the Court did not need to go on to consider whether the restriction was reasonable.

 

Conversely, the Court held that the post-termination restriction was in restraint of trade because it tied the trading activities of the agent after the agent ceases working for the principal.  The Court went on to hold however that the post-termination restriction was reasonable, and therefore enforceable, because the principal had provided substantial training to the agent, and both parties also agreed that customer loyalty tended to be attached in the industry to the agent, rather than the money transfer company.  Protecting the investment by One Mail in training constituted a legitimate interest, and the protection given by the restriction was not unreasonable as to its duration or extent.

 

A distinguishing feature of the case is that, unlike many other agency contracts, One Mail’s contract obliged One Mail to accept all orders obtained by its agent, Wasilewski.  This was significant for the Court because this obligation prevented One Mail from using the restriction on competition during the term of the agreement to “sterilise” Wasilewski’s ability to work.  It is interesting to speculate whether such reasoning would justify the converse conclusion that, absent such an obligation to accept all orders, a pre-termination non-compete obligation would necessarily be found to be in restraint of trade and therefore subject to a requirement of reasonableness.  

 

It should also be noted that, as the case concerned an agency for the sale of services, rather than goods, the UK regulations (1993 No. 3053) implementing the European Council Directive 86/653 on commercial agents did not apply.  However, given that the provisions of the Directive (and its UK implementing regulations) which recognise the ability of the principal to impose a post-termination non-compete obligation of up to two years’ duration (Article 20 and Regulation 20 respectively), are expressly subject to national rules on restraint of trade, the case should nevertheless apply to agency agreements within the scope of the Directive.

 

Please, download here the full text of the judgement.

 

Edward Miller, IDI agency and distribution country expert for UK

 

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