Risk Update

Firm Relationship Risk — Law Firm-to-Law Firm Non-competes Deemed A-okay in the UK

“[United Kingdom] Supreme Court upholds six-year non-compete clause signed by law firm” —

  • “A non-compete undertaking given by one law firm to another ahead of them working together was reasonable and not a restraint of trade, the [UK] Supreme Court ruled today.”
  • “Chesterfield firm Your Lawyers (YL) approached London practice Harcus Sinclair in 2016 for help with the group it was building to sue Volkswagen over the diesel emissions scandal. As a first step, Harcus was required to sign a non-disclosure agreement (NDA), which included a ‘non-compete’ clause, which provided that Harcus undertook “not to accept instructions for or to act on behalf of any other group of claimants in the contemplated group action” without the express permission of YL.”
  • “The key question of law, the Supreme Court said, was whether Mr Johnson was right, when considering whether the non-compete clause was protecting YL’s legitimate interests, to take into account the parties’ non-contractual intentions or what they contemplated would occur after entering into the NDA.”
  • “The Supreme Court went on to uphold Mr Johnson’s decision that the non-compete clause was reasonably necessary to protect YL’s legitimate interests: ‘Once it is seen that Your Lawyers had legitimate interests in protecting its own proposed group claim from Harcus Sinclair setting up a rival group claim, it was logical and necessary for the non-compete undertaking to last for a six-year period that would roughly equate to the limitation period for claims in the emissions litigation.'”
  • “The court said it was of ‘general relevance in considering reasonableness between the parties that the parties here were two law firms of equal bargaining power. If anything (as the Court of Appeal recognised), Harcus Sinclair may be regarded as being the ‘stronger’ party, because it was more experienced in these matters, than Your Lawyers.'”
  • “The court also saw ‘some force’ in YL’s broader submission that, even if a party was just protecting confidential information, a non-compete undertaking may be needed. ‘This is because it is often difficult to prove what is and what is not confidential information and, in particular, whether that information has been misused. A non-compete undertaking may be a useful means of ensuring that confidential information is protected without needing to prove, through protracted litigation, that the information has been misused.'”
  • “Once YL had established that the clause was reasonable as between the parties, the burden shifted to Harcus Sinclair to prove that it was nonetheless contrary to the public interest. But the Supreme Court again agreed with Mr Johnson’s decision that it was not. The deputy judge had found no public policy against a solicitor undertaking not to continue to act for a client.”

See also: full text of the ruling.