When an agency ends, how far can a principal go in stopping the agent from competing?
The case of BCM Group PLC v Visualmark Ltd & Anor drew a useful line, and
showed that a restraint clause can be struck down even when it sits inside the two-year
limit the Regulations allow.
The case of BCM Group PLC v Visualmark Ltd & Anor highlighted some important
points regarding commercial agents and restrictive covenants.
In the case, the agent, a seller of office equipment, disputed a restrictive covenant in
his contract which read as follows:
The disputed clause
16.1 The agent agrees that the agent will not following the termination of this agreement for whatever cause:
16.2 Within the period of one year thereafter carry on or be engaged in any business which trades from an office situated within a radius of 20 miles of the company’s trading address and competes with the business of the company as at the date of such termination.
16.3 Within a period of two years thereafter the agent will not thereafter canvass, approach or solicit the custom of (in respect of any business which competes with the business of the company as at the date of such termination) any person, firm or company who has, during a period of one year prior to such termination been a customer of the company.
It was this last clause that the Court was asked to consider. The agent argued that it was
not enforceable, as the two-year restriction period was too long and the scope of the
interests it was trying to protect was too wide.
In deciding the case, the Court considered each of these points in turn.
The two-year period
When considering the two-year restrictive period, the Court quickly found that this measure
was enforceable. Both parties had originally agreed to it, and the Commercial Agents
Regulations specifically state that a “restraint of trade clause shall be valid for not more
than two years after termination of the agency contract”.
The scope of the restriction
On the second point, however, the matter was by no means as clear-cut. The Court took into
account previous case law that had applied in similar situations between employers and
employees. In this context, the covenant was certainly so strict as to be unenforceable, as
the agent could have infringed the clause unknowingly, as he had no way of knowing whether
the people he dealt with had been former customers of his previous principal.
The Judge determined that it was unlikely that an agent, who was not tied as strongly to his
principal as an employee is to an employer, should have greater restrictions placed on him
than an employee could expect in similar circumstances. It was therefore ruled that the
clause was unenforceable.
The fact that the Court in this case was willing to draw a parallel between agents and
employees should help to bring a welcome degree of clarity to the question of what is and
what is not enforceable in a restrictive covenant clause.
Ashby Cohen Solicitors Ltd, 18 Hanover Street, London W1S 1YN · Tel: 0207 408 1338
This column does not contain legal advice and is for general guidance only. Agentbase,
Ashby Cohen and the writer accept no liability in connection with the general guidance given
in this column.
Editor’s note · AgentBase
The current position, and where restraint of trade meets competition law
This case dates from 2009, so a word on where the law sits now. Regulation 20 of the
Commercial Agents Regulations sets out when a post-termination restraint is valid: it must
be in writing, cover only the territory, customers and goods the agency covered, and last
no more than two years. Two years is a ceiling, not a safe harbour. As BCM v Visualmark
shows, a clause can still fail for being too wide even when it runs for less than two years,
so the length of a restraint is never the whole story.
There is a second limit that sits alongside all of this. Competition law places its own cap
on how far a principal can restrict an agent on pricing, customers or territory, and a
restriction that breaches it can be unlawful regardless of what the agency agreement says.
For how that works and how to stay on the right side of it, see
how competition law affects agency restrictions.
Further Reading
A restraint clause is one part of a wider contract. For the other clauses that need equal care, see what should be included in an agency contract.
A covenant restricts the agent after the agency ends. A separate set of rules restricts them during it. For the difference, see exclusive, sole or non-exclusive agent.