X-R Touring LLP v Javor & Anor

Factual and Procedural Background

The Appellant, a UK-based concert booking agency ("Company A"), brought an appeal against a decision by Kerr J dated 13 March 2024, which struck out its claim for a declaration of entitlement to commission as having no real prospect of success at trial. The dispute arose after the First Respondent, an employee and booking agent of Company A since 2008, left in August 2023 to work for the Second Respondent, a competitor ("Company B"). The employee had been involved in arranging concert bookings, some of which were for performances scheduled after his departure.

The employment contract between the employee and Company A included a fixed salary with no entitlement to bonus or commission and contained post-termination obligations, notably a non-solicitation covenant and a provision regarding commission on bookings discussed, scheduled, made, or contemplated prior to termination.

Following the employee's departure, Company A sought a declaration concerning entitlement to commission payments related to bookings arranged by the employee before leaving but performed after. The court below struck out the claim for commission but allowed claims related to the non-solicitation covenant to proceed.

Legal Issues Presented

1. Whether the commission provision in the employment contract is valid and enforceable or operates as an unreasonable restraint of trade.
2. Whether the commission provision is subject to severance or can be read down to be reasonable and enforceable.
3. Whether Company A has legitimate business interests protected by the commission provision.
4. Whether the judge below misapplied the test for strike out or summary judgment in dismissing the commission claim.
5. Whether the commission provision diminishes the employee's prospects of employment or ability to work post-termination.
6. Whether the restraint of trade doctrine applies to the commission provision and, if so, whether it is reasonable.

Arguments of the Parties

Appellant's Arguments

• The commission provision is standard industry practice and protects legitimate business interests by securing commission on bookings arranged or contemplated before the employee's departure.
• The provision does not operate as a restraint of trade that diminishes the employee’s prospects of employment or ability to work for a competitor.
• The judge erred in striking out the commission claim at an early stage without allowing a full trial, especially given the upheld validity of the non-solicitation clause.
• The commission provision can be severed or read down (e.g., removing "or contemplated") to render it reasonable and enforceable.
• The subsequent payments made by Company B to Company A in respect of bookings support the practical operation and enforceability of the provision.
• Company A has legitimate business interests in protecting the fruits of the employee's work during employment, including commission on future concerts planned or contemplated.

Respondents' Arguments

• The commission provision operates as an unreasonable restraint of trade and is unenforceable.
• The provision is unlimited in time, applies regardless of the employee’s involvement in bookings, and requires 100% of commission payable to be paid to Company A, which is excessive and unworkable.
• The employee was paid a fixed salary only and had no entitlement to commission; thus, the contractual structure does not support further fiduciary or contractual obligations beyond the salary.
• The restraint of trade doctrine applies and the commission provision is an unreasonable restriction on the employee’s freedom to work post-termination.
• The provision cannot be severed without materially changing its effect and is therefore wholly unenforceable.
• No claim against Company B for inducing breach of the commission provision has a realistic prospect of success.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the commission provision within the employment contract, focusing on whether it constituted an enforceable post-termination restraint or an unreasonable restraint of trade. The provision required the employee to account to Company A for all commission and monies related to bookings "discussed, scheduled, made or contemplated" before termination, including those taking place after employment ended, and to ensure all such bookings were contracted via Company A.

The court noted the employee was paid a fixed salary and had no entitlement to commission, distinguishing this case from others where commission formed part of remuneration. It was recognised that Company A’s commission income came directly from counterparties, not the employee, and that contractual arrangements could ensure commission was paid directly to Company A.

The court considered that if Company A had contractual rights against counterparties, any wrongful diversion of commission by the employee or Company B would give rise to claims independent of post-termination restraints.

On the restraint of trade analysis, the court found that the commission provision operated as a restraint of trade because it imposed a strong disincentive on the employee to work for competitors with clients in common with Company A. The obligation to pay 100% of commission regardless of the employee’s involvement or knowledge was unworkable and overly broad. The provision was unlimited in time and scope, capturing tentative or inconclusive discussions, which was unreasonable.

The court rejected arguments that the provision could be justified as similar to fiduciary duties or bonus clawback arrangements. It also held that the provision could not be saved by severance or reading down except possibly the phrase "or contemplated," which might be severable.

The court acknowledged that Company A had legitimate business interests in protecting commission on bookings arranged before termination. However, the commission provision went beyond what was reasonably necessary to protect those interests, especially given the absence of a non-dealing covenant, which might have been a more appropriate and limited restriction.

Regarding the appeal grounds, the court concluded that the judge below did not misapply the strike out test and was correct to find no real prospect of success for the commission claim. The restraint of trade doctrine applied, and the commission provision was unreasonably wide and unenforceable.

The court also considered industry practice and the possibility that such clauses might be standard, but found that this did not suffice to render the provision reasonable at the strike out stage. The question of reasonableness and severance was ultimately a matter for trial, but the commission provision itself could not be upheld as valid and enforceable.

Two judges dissented on the appeal outcome, considering the commission provision to be a restraint of trade but disputing that it was necessarily unreasonable or unenforceable at this stage, emphasizing the need for a full trial to assess the clause in its commercial context.

Holding and Implications

The court ALLOWED the appeal in part, overturning the strike out of the commission claim and holding that the question of the commission provision’s reasonableness and severance was unsuitable for summary determination and required a full trial. The court accepted that Company A has legitimate business interests that may justify some protection regarding commission on bookings arranged before termination.

The direct effect is that the claim concerning the commission provision should not have been struck out and must proceed to trial for full consideration of the issues. However, the court affirmed the previous decision to allow the non-solicitation claims to proceed separately.

No new precedent was established beyond clarifying the application of the restraint of trade doctrine to commission provisions in employment contracts and the necessity of trial where reasonableness and severance issues are contested.