Restrictive Covenants in Spotlight After CEO’s Move

News that Sir Martin Sorrell, the former chief executive of global agency WPP, plans a high profile return to the world of advertising has brought workplace restrictive covenants firmly back into focus.

Just six weeks after his departure from WPP, his new agency, S4 capital, sounds a lot like the company he helmed for 33 years. The initial commentary suggests that it will be a “multinational communication services business focused on growth”. S4 plans to concentrate on opportunities with technology, data and content. Operating in the same industry it will almost certainly take business from WPP.

Gaining notoriety for once being the highest remunerated FTSE-100 chief executive, the question many legal commentators are asking is how Sorrell is able to lead such an obviously competitive new venture so soon after leaving. Typically, such a key individual would be subject to restrictive covenants in his employment contract or service agreement. If there were none, an exit agreement or prior shareholder agreement might include similar restrictions.

It could be that at the age of 73 Sorrell was not expected to start all over again. But that has clearly underestimated an individual who developed WPP into a global leader 33 years after founding it.

His new plans serve as a warning to all businesses large and small to review their contracts to ensure they have appropriate restrictive covenants or non-compete provisions.

That said, the law in this area is complex, and restrictive covenants will only be enforceable if they are deemed to be “reasonable” in all the circumstances. Provisions in private arrangements such as share or business sales, and even shareholder agreements, can be more extensive than those in employment contracts but even so, all are time-limited, and all must be appropriate.

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If you believe your business could be vulnerable if an individual were to depart, you should immediately discuss the position with our Commercial Law Department who are skilled in advising on the risks and how best to overcome them. Call us or email by using the form to the right.This article was written by Ed Garston, Senior Associate at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of May 2018.