The High Court has upheld a 2 year non-poaching and non-compete clause which was in a Business Sale Agreement for the sale of a hairdressers. The seller of the business (who was represented by solicitors) sold the business and agreed in the contract that she would not be involved in any competing hairdresser’s business within a 2 mile radius of the business she was selling and she would not try to poach any of the businesses’ staff or customers. The purchaser of the business clearly needed these reassurances to know that the value of the business would be preserved. These types of clauses are very common in Business Sale Agreements as you would not want to buy a business and find that the seller simply set up another shop close by and stole all of their customers back. If this were to happen you could find that you have overpaid for the business.
In this particular case, the seller of the business formed a new limited company and through that company opened a new salon close by to the old business within the 2 year restrictive period. Three of the staff of the old business were poached and the purchaser of the old business was concerned that the clients would quickly follow to the new business. The seller of the old business tried to argue that she was not in breach of the Agreement because she had carried out her actions through the limited company. The court did not agree with that argument. She also tried to claim that the period of the restriction was excessive. Again, the court dismissed this argument on the basis that the seller of the business was legally represented and that she did not have to sell the business on the terms required by the purchaser. In other words, the court decided that she freely agreed to enter into a contract.
Whilst this case does not change the Law as such as these types of Agreements are very common, it does help to clarify the fact that the courts will uphold these types of Agreements particularly when both parties are legally represented.
The key point to take from this case is the importance of having properly drawn up paperwork to protect your interests whether you are selling your business or buying someone else’s business. At Jordan’s we often see clients who have bought or sold a business doing the work themselves without entering into a contract and therefore they have not agreed these types of restrictions. If you are buying someone’s business it is very important that you have an Agreement relating to what you are buying and shutting out the seller from setting up a new business. Without such a contract and even if they have told you that they are selling the business because, for example, they are retiring there would be nothing to stop them changing their mind and directly competing with you.
The case referred to is Rush Hair Ltd –v- Gibson-Forbes and Anor  EWHC 2589.
If you would like further advice about the issues raised in this article, please contact Susan Lewis of Jordan’s Solicitors on 0330 300 1003 or by clicking here.