[et_pb_section fb_built=”1″ _builder_version=”3.0.100″ background_image=”http://davidk423.sg-host.com/wp-content/uploads/2017/09/bdbf_final-stages-1-4-1.jpg” custom_padding=”|||” global_module=”2165″ saved_tabs=”all”][et_pb_row _builder_version=”3.25″ custom_padding=”|||”][et_pb_column type=”4_4″ _builder_version=”3.25″ custom_padding=”|||” custom_padding__hover=”|||”][et_pb_text _builder_version=”3.27.4″ background_layout=”dark” custom_margin=”0px|||” custom_padding=”0px|||”]

Employment Law News

[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section fb_built=”1″ admin_label=”section” _builder_version=”3.22.3″][et_pb_row admin_label=”row” _builder_version=”3.25″ background_size=”initial” background_position=”top_left” background_repeat=”repeat”][et_pb_column type=”4_4″ _builder_version=”3.25″ custom_padding=”|||” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.7.4″ text_orientation=”justified” hover_enabled=”0″ use_border_color=”off” sticky_enabled=”0″]

Look before you leap – does your employment contract prevent you from starting a new job?

With the economy entering what we hope is a recovery phase we are seeing an increase in senior employees looking to start new jobs running up against restrictive covenants in their employment contracts.

If you are in a role where your employer may want to prevent you from competing with them (for example a senior management or sales role) then you should take advice on your obligations at an early stage because:

• Restrictive covenants are not always unenforceable: Post termination restrictions are only enforceable if they are reasonable and go no further than is necessary to protect the employer’s legitimate business interest.  However, what that means in practice requires a detailed review of your role and the confidential information, clients etc. you interact with.
• You need the complete picture: In addition to your employment contract there may also be post-termination restraints in other documents you have signed up to, such as share schemes or other incentive plans.  These documents may well be subject to foreign law, adding a further layer of complexity.  We frequently work with foreign qualified lawyers to assist clients in this situation.
• The documents are not the full story: You will also owe a series of implied obligations to your employer depending on your seniority, that must be carefully navigated.  What, for example, can you say to clients about your move to a competitor without getting into difficulty? What can you say on LinkedIn?
• You might be able to escape your restrictions (and your notice period) altogether: This can be the case if you have been “constructively dismissed” by your employer but your resignation must be handled promptly and in the right way for this to work.
• You need to get your new employer onboard: Understanding your obligations will enable you to negotiate, for example: coverage from the new employer in relation to any dispute about your restrictions, and, if we do take the view that you need to spend some time on the bench, something from the new employer to plug the lost income from doing so.
• There is usually not safety in numbers:  If more than one person from a team is moving to a new employer at the same time, then the risks of a dispute can increase significantly, particularly for the person who heads the team. We often guide teams through such moves, and we can help reduce the scope for litigation and risk.
• The stakes are high: If your former employer decides to start proceedings against you in respect of a breach of a restrictive covenant (such as by way of an injunction) this could disrupt the relationship with your new employer. The costs of defending such proceedings can be high, and the remedies available to employers could prevent you from taking up your role and may even require you to make a payment to your former employer on account of profits.
• Many people leave it too late: Better outcomes can often be achieved if advice is taken at an early stage rather than waiting until you have fallen into dispute with your current employer.

If you would like a discussion about any of these issues, please contact Tom McLaughlin (tommclaughlin@bdbf.co.uk) or your usual BDBF contact.

[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”3.26.6″][et_pb_row _builder_version=”3.26.6″][et_pb_column type=”4_4″ _builder_version=”3.26.6″][/et_pb_column][/et_pb_row][/et_pb_section]

[et_pb_section bb_built=”1″ background_color=”#ffffff” fullwidth=”on” custom_padding_last_edited=”on|desktop” _builder_version=”3.0.99″ custom_padding_tablet=”50px|0|50px|0″ transparent_background=”off” padding_mobile=”off” custom_padding=”|||” next_background_color=”#000000″ global_module=”136″][et_pb_fullwidth_header global_parent=”136″ title=”Employment Law News” _builder_version=”3.0.99″ background_image=”http://davidk423.sg-host.com/wp-content/uploads/2017/09/bdbf_final-stages-1-4-1.jpg” background_layout=”dark” title_font=”||||||||” subhead_font=”||||||||” background_color=”rgba(255, 255, 255, 0)” /][/et_pb_section][et_pb_section bb_built=”1″ admin_label=”section” prev_background_color=”#000000″][et_pb_row admin_label=”row” background_position=”top_left” background_repeat=”repeat” background_size=”initial”][et_pb_column type=”3_4″][et_pb_text use_border_color=”off” border_color=”#ffffff” border_style=”solid” _builder_version=”3.12.2″]

Sir Martin Sorrell: Ramifications of a Breach of his Restrictive Covenants

In April 2018, Sir Martin Sorrell resigned as Chief Executive Officer of WPP Group. This followed more than three decades spent at the helm of the multinational advertising and PR company. It came after WPP’s board commissioned an inquiry into a whistleblower’s allegation. The whistleblower accused Sir Martin of ‘personal misconduct’ and misuse of company assets, which he has denied. In addition, WPP claims he is in breach of restrictive covenants.

Recently, Sir Martin agreed a deal to acquire MediaMonks, a digital production company worth £300 million. According to WPP, this breaches a confidentiality agreement he had with them. In doing so, he is using information gathered when he and WPP were looking at acquiring the business. This was before he resigned and could lead to him losing stock awards worth over £20 million pounds.

This is a timely reminder of the value of confidentiality agreements combined with restrictive covenants. As such, here are some of the key factors to consider:

10 Key Points about Restrictive Covenants

Enforcing Restrictions

1. Don’t start from a false premise – some may consider that post-termination restrictions are unenforceable. However, this is not the case. Generally, restrictive covenants are enforceable provided there is a legitimate and protected business interest. What’s more, it is important that the scope of the restrictions is not too wide as to be unreasonable in achieving that aim.

2. Reasonableness and enforceability depend upon a number of factors. For example, the business interests that are protected, the way the restrictions are drafted and their length, the geographical reach and the employee’s role or seniority.

3. Restrictions apply to the role the employee held when the employer initially applied the restrictive covenants. Although lengthy and onerous restrictions may be reasonable for a senior role, a junior role may be held when leaving the company. Therefore, such restrictions would not be reasonable for the role held when the restrictions were applied. What’s more, they may not be enforceable and so it is important for employers to keep restrictions under review.

Check contracts carefully

4. Beware of off-the-shelf contracts – the wording used in the restrictions should be bespoke to the individual and the company. Additionally, the role performed and the legitimate aim being pursued, although, this is not guaranteed if employers use a template contract. The restrictions may have a deterrent effect. However, they may be meaningless when it comes to enforcing them.

5. Always check share plan rules and other deferred remuneration schemes as post-termination restrictions are found in these too. What’s more, restrictions in these arrangements may be more enforceable than in contracts of employment, even when they are more onerous.

6. Consider post-termination restrictions at the start of your employment relationship, not just the end. The most secure way of understanding your obligations and negotiating these restrictions is to do this at the outset. By the time the employment relationship ends you will already be bound by the restrictions. As such, any actions taken can already be in breach of these. Moreover, if you are seeking to join a competitor, or set up in competition, to be forewarned is to be forearmed.

7. Sometimes employers impose or amend restrictive covenants during the life cycle of an employment relationship. For example, at the point of promotion. Although, employees may overlook this at the joy of receiving a promotion, which comes with a pay rise. However, the pay rise acts as the consideration for entering into post-termination restrictions. Understandably, whilst an employee may wish to forego the perks of the promotion, they should seek advice on the restrictions, especially as they may be negotiable at that point. Importantly, a time to take advice would be before entering into them and accepting the promotion.

Breach of contract

8. Post-termination restrictions are not enforceable if the employer has acted in serious (or ‘repudiatory’) breach of the employment contract. Also, in cases where the employee does not accept the breach. For example, this can occur if the employer fails to pay notice due under the contract of employment. Alternatively, if they act so poorly that they have breached the contract of employment insofar that the employee is entitled to resign and claim constructive unfair dismissal. Consequently, such behaviour can be a get-out clause for the employee of their post-termination restrictions.

9. Employers should consider whether to offer a settlement agreement in cases where senior employees are leaving and there are no restrictive covenants. At that stage they can impose new or improved restrictive covenants. However, in these circumstances the employer will need to offer some form of compensation or incentive for the employee to agree.

10. Be mindful of the implications of being in breach. For example, Sir Martin found this could result in WPP withholding contractual payments and valuable shares, and deferring compensation. Whilst this may not hurt Sir Martin’s pockets, most pockets are not so deep.

BDBF are employment law specialists. If you have any queries about restrictive covenants, please contact Samantha Prosser, Senior Associate via samanthaprosser@bdbf.co.uk or 020 3828 0350.

[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_sidebar orientation=”right” area=”sidebar-1″ background_layout=”light” remove_border=”off” show_border=”on” /][/et_pb_column][/et_pb_row][/et_pb_section]

[et_pb_section admin_label=”Section” global_module=”136″ fullwidth=”on” specialty=”off” transparent_background=”off” background_color=”#ffffff” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off”][et_pb_fullwidth_code global_parent=”136″ admin_label=”Fullwidth Code”][Page_Header_Start]Employment Law News[Page_Header_End][/et_pb_fullwidth_code][/et_pb_section][et_pb_section admin_label=”section”][et_pb_row admin_label=”row”][et_pb_column type=”3_4″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]

Employer given £2 in damages for misuse of confidential information

[post_details]

[Social-Share]

An employer who had sought £15 million in damages for misuse of its confidential information has been awarded only £2 for its former employees’ breaches of their confidentiality duties.

Marathon Asset Management LLP is an asset management firm and one of its founders, Mr Seddon, left to set up a competing business, taking with him a number of Marathon’s staff. Among those staff was Mr Bridgeman. Marathon brought a claim in the High Court against Mr Seddon and Mr Bridgeman alleging that they had taken its confidential information before they left the firm.

Mr Bridgeman admitted that he had copied a large number of Marathon’s confidential documents on to a USB stick before he left, and that he retained them for some time. He conceded that, in doing so, he was in breach of contract. Some of the documents Mr Bridgeman had downloaded to his USB stick were accessible to him because Mr Seddon had previously moved them to a shared drive.

All parties agreed that Mr Seddon had not used any confidential information. Mr Bridgeman had used a small number of documents, but that use had not caused Marathon any significant loss.

Marathon argued that it should be entitled to damages of £15 million, representing the value of the confidential information taken. Marathon assessed that this sum would have been a reasonable charge for releasing the ex-employees from their duties of confidentiality.

The High Court recognised that both Mr Seddon and Mr Bridgeman had been in breach of their duties of confidentiality and their contracts. However, those breaches had not caused Marathon any loss, and there was nothing to show that either Mr Seddon or Mr Bridgeman had made any gain. Therefore, the High Court held that there was no justification for anything more than nominal damages of £2. This equated to £1 per defendant.

This case illustrates that it is not the risk of loss which matters, but the actual loss suffered. An inability to quantify the amount of loss is not necessarily a problem, but being unable to show any loss at all most likely will be.

Marathon Asset Management LLP and another v Seddon and another [2017] EWHC 300 (Comm)

[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_sidebar admin_label=”Sidebar” orientation=”right” area=”sidebar-1″ background_layout=”light” remove_border=”off”] [/et_pb_sidebar][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”section”][et_pb_row admin_label=”row”][/et_pb_row][/et_pb_section]

[et_pb_section admin_label=”Section” global_module=”136″ fullwidth=”on” specialty=”off” transparent_background=”off” background_color=”#ffffff” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off”][et_pb_fullwidth_code global_parent=”136″ admin_label=”Post Header”][Page_Header_Start] Employment Law News[Page_Header_End][/et_pb_fullwidth_code][/et_pb_section][et_pb_section admin_label=”section”][et_pb_row admin_label=”row”][et_pb_column type=”3_4″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”justified” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]

Getting your business off to the right start

[post_details]

[Social-Share]

Starting up a new enterprise can be a daunting task. Most entrepreneurs’ energies will be devoted to perfecting their product or service and generating demand.  Protecting the business itself can seem less important; however, at this early stage businesses are both more exposed to risk and best placed to prevent it.

These are our top three employment law tips for new businesses:

1. Protecting confidential information – If a business has no contractual arrangements to protect confidential information when a member of staff leaves, they will have very little legal protection. Without a contract, the law will protect only the most key trade secrets (like the secret recipe for Coca Cola). That may help a start up which has developed cutting edge technology, but the reality is that many very successful start ups do not rely on trade secrets: they have a good product or service that they deliver well. Without contractual protection, this can leave them very exposed to a sharp elbowed or disgruntled former member of staff.

A well drafted contract employment contract will change that and can protect confidential information that does not form part of an employee’s skills and general knowledge.

2. Protecting your clients – Even though clients and staff are the most valuable asset of many businesses, there is no base layer of protection to stop ordinary employees from leaving and using their contacts to help them set up in competition (although that can sometimes be different with very senior employees).

Most small business owners know this and think that they have appropriate provisions in their employment contracts to prevent former employees from taking clients and sometimes even from competing full stop.

A little bit of knowledge can be a dangerous thing and that is certainly true with post-termination restrictions. Courts in the UK take a very restrictive attitude to post-termination restrictions in employment contracts and will only enforce those that they consider protect the legitimate interests of the business. If a covenant goes further than that, unless it can delete the offending section, a Court will not enforce it. Drafting enforceable covenants is a bespoke exercise: what a business’ legitimate interests are will depend on the sector, business and the employee’s role in question. So while many businesses think that they are covered by a standard agreement that they downloaded from the internet, often those agreements are not worth the paper that they are written on. It is only after an employee has left and breached them that a restriction will be tested. If they don’t work, by then it will be too late to protect the business.

If an employee has access to valuable information or clients, it is worth making sure the business is protected with bespoke, enforceable post-termination restrictions. Another approach that smaller businesses could explore is whether to offer their staff a small equity stake in their business. Courts can be more generous in their approach to post-termination restrictions contained in shareholders agreements, for example.

3. Interns – Many new businesses will rely on the input and assistance of unpaid interns. The concept of an intern is relatively new to UK law. As a result, it fits in quite badly with what is already a messy area of law. There are three categories of staff:

1. employees, who benefit from all employment law protections, including the right after two years’ service, not to be unfairly dismissed;
2. workers, who benefit from the right not to be discriminated against, holiday pay and the national minimum wage; and
3. everyone else, who do not have much in the way of employment law protections as they are traditionally viewed as being in business on their own account.

It is not always easy, even for employment lawyers, to determine where staff fall between these categories.  Interns are no exception.  If interns fall into this latter category, they will not qualify for the national minimum wage.  However, the legal ambiguity means that it is open to interns to argue that they are in fact workers, or even employees, which could leave the business exposed to a claim for unpaid wages or holiday pay.

To be a worker, an intern must work under a contract to provide services. This means that there needs to be a legal agreement in place (which can be written or oral) and that the intern must receive ‘consideration’ for their work.  Interns’ working arrangements are more likely to fall into the latter category if employers do the following:

• Softening the language – Softening the wording of an internship arrangement can be helpful to suggest that there is no contract in place.  For example, ‘we would be grateful if you could start around 9 am’ or ‘if you do not want to carry on with this internship, try and let us know a week or two in advance’.
• Being careful about payments/benefits offered – ‘consideration’ can be any form of payment or benefit in kind for work.  Refunding genuinely incurred expenses should fall outside of this but offering interns flat expense fees or the opportunity of a job at the end of an internship could qualify as consideration and mean that they qualify as workers.

Employment law should not be the focus of start ups but it can be an expensive and unnecessary distraction at a time when a business can least afford it. The right employment law protections from the start will help insure against future disputes with current and former staff.

BDBF is a leading employment law firm based at Bank in the City of London. If you would like to discuss any issues relating to the content of this article, please contact info@bdbf.co.uk, or your usual BDBF contact.

[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_sidebar admin_label=”Sidebar” orientation=”right” area=”sidebar-1″ background_layout=”light” remove_border=”off”] [/et_pb_sidebar][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”section”][et_pb_row admin_label=”row”][/et_pb_row][/et_pb_section]

[et_pb_section admin_label=”Section” global_module=”136″ fullwidth=”on” specialty=”off” transparent_background=”off” background_color=”#ffffff” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off”][et_pb_fullwidth_code global_parent=”136″ admin_label=”Post Header”][Page_Header_Start] Employment Law News [Page_Header_End][/et_pb_fullwidth_code][/et_pb_section][et_pb_section admin_label=”section”][et_pb_row admin_label=”row”][et_pb_column type=”3_4″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]

When can employers get “negotiation damages” from a former employee?

[post_details]

[Social-Share]

The Courts have indicated that where an employee has breached restrictions relating to their conduct after they leave their employer, an appropriate remedy will quite often be the price employees would have had to have paid in negotiation to buy their way out of the contractual obligations.

Karen Morris-Garner became a director at One Step having sold her own supported living business to it. Ms Morris-Garner owned 50% of the shares in One Step, the other 50% belonging to Mr and Mrs Costelloe. The relationship between Ms Morris-Garner and the Costelloes deteriorated and, in 2006, Ms Morris-Garner and her civil partner incorporated their own company. Later, Ms Morris-Garner resigned as a director of One Step and sold her 50% shareholding in it to Mr Costelloe. The contractual documents surrounding the sale contained non-competition and non-solicitation covenants binding Ms Morris-Garner and her civil partner. Some months later, Ms Morris-Garner’s competing company began to trade.

The High Court found that Ms Morris-Garner and her civil partner were in breach of the restrictive covenants which bound them after the share sale was completed. As a result, it awarded to One Step negotiation damages, being the price which the parties would have agreed in return for One Step releasing Ms Morris-Garner and her civil partner from their restrictions.

The Court of Appeal upheld the High Court’s decision. It held that the award of negotiation damages is appropriate where it is a just response to a situation where it is very difficult (but not necessarily impossible) for the old employer to identify the loss it has suffered due to the breach. The case need not be exceptional in order for those factors to be present.

Negotiation damages were just in the present case considering that: (i) Ms Morris-Garner was the public face of the company and had the strongest client relationships; (ii) competition by Ms Morris-Garner could be very damaging to One Step; (iii) Ms Morris-Garner had been paid a substantial amount of money in consideration for signing up to the restrictive covenants; and (iv) Ms Morris-Garner and her civil partner had secretly and deliberately breached their restrictions.

Employers concerned about employee competition should take solace from this case. It is now clear that these damages may be available when it is difficult to quantify loss (or where there is no loss).

Morris-Garner and another v One Step (Support) Ltd [2016] EWCA Civ 180

[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_sidebar admin_label=”Sidebar” orientation=”right” area=”sidebar-1″ background_layout=”light” remove_border=”off”] [/et_pb_sidebar][/et_pb_column][/et_pb_row][/et_pb_section]

[et_pb_section admin_label=”Section” global_module=”136″ fullwidth=”on” specialty=”off” transparent_background=”off” background_color=”#ffffff” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off”][et_pb_fullwidth_code global_parent=”136″ admin_label=”Post Header”][Page_Header_Start] Employment Law News [Page_Header_End][/et_pb_fullwidth_code][/et_pb_section][et_pb_section admin_label=”section”][et_pb_row admin_label=”row”][et_pb_column type=”3_4″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]

Constructive dismissal inapplicable to multi-party LLP agreements

[post_details]

[Social-Share]

[post_tags]

The High Court has made a significant decision which will prevent exiting members of an LLP from avoiding restrictive covenants by alleging they had resigned in response to the employer’s breach of contract.

Mr Flanagan was a member of Liontrust Investment Partners LLP. His membership was governed by a members agreement to which he was party. The law provides that where people are members of an LLP and a members agreement does not subsist default provisions under the Limited Liability Partnership Act apply. Liontrust took the decision to close the fund that Mr Flanagan was managing, thereby putting him on notice of compulsory retirement and on garden leave; however, they did not do so in accordance with the provisions of the members agreement which amongst other things required the approval of a properly constituted meeting of the Management Committee for a member to be put on garden leave. No such approval was obtained. Mr Flanagan sought to argue that the firm’s conduct amounted to a breach of the LLP Agreement sufficiently serious to demonstrate an intention by the LLP not to be bound by the members agreement, which, if the principle of repudiatory breach which applies to employment contracts applied here, would mean Mr Flanagan could say that the members agreement was terminated and instead Mr Flanagan could rely on the default legislative provisions entitling him to an equal share in the LLP’s capital, even though he was not entitled to any equity interest under the original agreement.

The High Court reached the decision that the doctrine of repudiatory breach could not apply to LLP agreements, as its application could result in members in the same LLP being bound by different arrangements with some members being bound by the members agreement whilst others would be covered by the default provisions under the LLP Act. The Court did leave open the possibility of the doctrine being applicable to LLPs with two members.

This important decision will significantly reduce the leverage available to disgruntled LLP members seeking to negotiate a favourable exit as it means there is no equivalent of constructive dismissal available to them. The fate of LLPs with only two members has yet to be decided in this respect.

Flanagan v Liontrust Investment Partners LLP and others [2015] EWHC 2171

[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_sidebar admin_label=”Sidebar” orientation=”right” area=”sidebar-1″ background_layout=”light” remove_border=”off”] [/et_pb_sidebar][/et_pb_column][/et_pb_row][/et_pb_section]

[et_pb_section admin_label=”Section” global_module=”136″ fullwidth=”on” specialty=”off” transparent_background=”off” background_color=”#ffffff” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off”][et_pb_fullwidth_code global_parent=”136″ admin_label=”Post Header”][Page_Header_Start] Employment Law News [Page_Header_End][/et_pb_fullwidth_code][/et_pb_section][et_pb_section admin_label=”section”][et_pb_row admin_label=”row”][et_pb_column type=”3_4″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]

Court tailors interim injunction to reduce client impact

[post_details]

[Social-Share]

[post_tags]

An employer has been granted an interim injunction restraining its former employees’ use of confidential information and intellectual property at a competitor. However, it has limited those restraints so as not to cause harm to a customer.

Allfiled UK created a data storage system allowing for the secure storage of confidential information such as bank details. A number of employees (including directors) left Allfiled and created a new company, Port Tech. Port Tech contracted with a client company, Magpie, to provide a data storage system which Allfiled alleged was based on its own system. Allfiled alleged that the employees had breached the confidential information and intellectual property covenants in their contracts and, on that basis, applied for an injunction.

The High Court held that imposition of an interim injunction pending a final hearing was justified. However, it tailored the prohibitions in the injunction to ensure that Port Tech was capable of carrying on a degree of business in the interim. This was partly due to the fact that, if Port Tech were driven into liquidation before trial, Allfiled’s claim for damages would be rendered worthless. Interestingly, the High Court also took into account evidence provided by Magpie which demonstrated the significant detriment Magpie would suffer if all business under its contract with Port Tech were to cease.

This case demonstrates that courts approach the question of whether to grant interim injunctions pragmatically and taking into account the prejudice caused to all interested parties. Considering the weight given to Magpie’s intervention in this case, companies facing an injunction may wish to consider asking key clients to provide evidence on the impact an injunction would also have on them.

Allfiled UK Ltd v Eltis and others [2015] EWHC 1300

[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_sidebar admin_label=”Sidebar” orientation=”right” area=”sidebar-1″ background_layout=”light” remove_border=”off”] [/et_pb_sidebar][/et_pb_column][/et_pb_row][/et_pb_section]

[et_pb_section admin_label=”Section” global_module=”136″ fullwidth=”on” specialty=”off” transparent_background=”off” background_color=”#ffffff” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off”][et_pb_fullwidth_code global_parent=”136″ admin_label=”Post Header”][Page_Header_Start] Employment Law News [Page_Header_End][/et_pb_fullwidth_code][/et_pb_section][et_pb_section admin_label=”section”][et_pb_row admin_label=”row”][et_pb_column type=”3_4″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]

Director’s duty of confidentiality did not include a duty to return confidential documents

[post_details]

[Social-Share]

[post_tags]

The High Court has held that a non-executive director was not obliged to return all documents he had received during the course of his appointment which related to the company.

Sir Paul Judge was appointed as a Non-Executive Director of Eurasian Natural Resources Corporation on 6 December 2007; he also held directorships in other companies. The terms of that appointment included confidentiality provisions precluding the disclosure of any information acquired during his appointment to third parties. On 25 April 2013, the SFO publicly announced its investigation into Eurasian relating to allegations of fraud, bribery and corruption. On 5 June 2013, Eurasian terminated Sir Paul’s directorship and requested that he deliver up all information he had received during the course of his directorship.

The SFO served Sir Paul with a notice requiring him to provide information relevant to its investigation; the notice bore a warning that failure to comply without reasonable excuse was a criminal offence. Sir Paul’s solicitors emailed the SFO asking what should be done with the documents in his possession which were being requested by Eurasian. The SFO confirmed that the documents should not be returned to Eurasian and added that to do so would be a criminal offence. Sir Paul’s solicitors agreed to ensure that no privileged information was sent to the SFO but Sir Paul declined to sign an undertaking to return to Eurasian all confidential information once the SFO’s notice was complied with.

Eurasian argued that, in addition to a duty of confidentiality, Sir Paul was subject to an implied duty to deliver up documents; it applied for an injunction to restrain breaches of those alleged duties.

The High Court considered that Sir Paul was under no contractual duty to deliver up documents legitimately received in the course of his appointment. In the absence of an express clause requiring it, non-executive directors as a matter of course, are not obliged to return such documentation. The Court took a view that the existence of such a duty would not make business sense, as it would require a considerable amount of work for the director to comply with, particularly where the director holds multiple appointments. It was also relevant that Sir Paul was directly obliged by the SFO not to provide documents to Eurasian. However, the Court held that it may choose to exercise its discretion to require delivery up in any event if there were evidence of misuse.

This decision can be contrasted with ordinary employees and executive directors where the expectation is much stricter both in terms of staff sending documents home, which may be gross misconduct.

Eurasian Natural Resources Corporation Ltd v Sir Paul Judge [2014] EWHC 3556

[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_sidebar admin_label=”Sidebar” orientation=”right” area=”sidebar-1″ background_layout=”light” remove_border=”off”] [/et_pb_sidebar][/et_pb_column][/et_pb_row][/et_pb_section]

[et_pb_section admin_label=”Section” global_module=”136″ fullwidth=”on” specialty=”off” transparent_background=”off” background_color=”#ffffff” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off”][et_pb_fullwidth_code global_parent=”136″ admin_label=”Post Header”][Page_Header_Start] Employment Law News [Page_Header_End][/et_pb_fullwidth_code][/et_pb_section][et_pb_section admin_label=”section”][et_pb_row admin_label=”row”][et_pb_column type=”3_4″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]

Employee resigning in breach of contract held to notice period without pay

[post_details]

[Social-Share]

[post_tags]

The Court of Appeal has upheld an injunction against an employee trying to walk away from a long notice period and non-compete restrictions. You may remember our coverage of this case when it was heard by the High Court in the summer.

Mr Rodgers had been a broker at Sunrise Brokers LLP and his contract of employment provided: (i) that the contract could not be terminated for the first 3 years and thereafter could be terminated on 12 months’ notice; (ii) that Mr Rodgers could be placed on garden leave and continue to receive salary and benefits; and (iii) that there were extensive post-employment non-compete restrictions on Mr Rodgers.

In March 2014, Mr Rodgers told Sunrise that he wanted to leave. He attended a short meeting with Sunrise in April 2014 and did not return after this. HR recorded this as an unauthorised absence and Sunrise stopped paying Mr Rodgers.

Sunrise said that they had not accepted Mr Rodgers’ breach of contract, namely his refusal to work, as bringing the contract to an immediate end and that he was still an employee and therefore not allowed to work for anyone else. Mr Rodgers’ solicitors responded saying that Mr Rodgers’ early resignation had been accepted by Sunrise as evidenced by their cessation of payment, or that in the alternative, the non-payment of wages was itself a breach of contract by Sunrise which Mr Rodgers accepted as ending the contract.

The Court of Appeal upheld the High Court’s decision and held that Sunrise had not accepted Mr Rodgers’ breach of contract. In the circumstances Sunrise’s failure to pay a salary did not amount to breach of contract because Mr Rodgers’ right to payment depended on his willingness to work. The Court of Appeal rejected Mr Rodgers’ submission that the effect of the injunction was to compel him to work. It found this argument unfounded for the following reasons: (i) Mr Rodgers had a start date of January 2015 with his new employer, which suggested that Mr Rodgers could cope until then without pay; (ii) Mr Rodgers had not submitted evidence to show that the lack of payment would cause him financial hardship; (iii) Mr Rodgers did not submit evidence to the effect that his skills would atrophy whilst idle; (iv) the length of the restraint period was caused by Mr Rodgers’ decision not to return to work.

This case demonstrates that the principle of “no work, no pay” does not amount to compelling an employee to work and can apply, but only where the employer wants the employee to work and the employee refuses. Mr Rodgers’ arguments on compulsion may have been more convincing had he provided better evidence.

Sunrise Brokers LLP v Rodgers [2014] EWCA Civ 1373

[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_sidebar admin_label=”Sidebar” orientation=”right” area=”sidebar-1″ background_layout=”light” remove_border=”off”] [/et_pb_sidebar][/et_pb_column][/et_pb_row][/et_pb_section]

[et_pb_section admin_label=”Section” global_module=”136″ fullwidth=”on” specialty=”off” transparent_background=”off” background_color=”#ffffff” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off”][et_pb_fullwidth_code global_parent=”136″ admin_label=”Post Header”][Page_Header_Start] Employment Law News [Page_Header_End][/et_pb_fullwidth_code][/et_pb_section][et_pb_section admin_label=”section”][et_pb_row admin_label=”row”][et_pb_column type=”3_4″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]

Employee resigning in breach of contract held to notice period without pay

[post_details]

[Social-Share]

[post_tags]

The High Court granted an injunction against an employee trying to walk away from a long notice period and non-compete restrictions. It held that the employment relationship was still in existence even though the employee had not been paid.

Mr Rodgers had been a broker at Sunrise Brokers LLP since May 2009. In October 2011, Sunrise asked Mr Rodgers to set up a precious metals desk and Mr Rodgers signed a new contract of employment which provided: (i) that the contract could not be terminated for the first 3 years and thereafter could be terminated on 12 months’ notice; (ii) that Mr Rodgers could be placed on garden leave and continue to receive salary and benefits; and (iii) that there were extensive post- employment non-compete restrictions on Mr Rodgers.

In March 2014, Mr Rodgers told one of the directors at Sunrise that he wanted to leave. He was told to return to work until the director responsible for him was back but did not do this and left Sunrise shortly afterwards. He attended a short meeting with Sunrise in April 2014 and did not return after this. HR recorded this as an unauthorised absence and Sunrise stopped paying Mr Rodgers.

Sunrise’s solicitors wrote to Mr Rodgers and said that they had not accepted his breach of contract, namely his refusal to work, as bringing the contract to an immediate end and that he was still an employee and therefore not allowed to work for anyone else. Had Sunrise accepted the breach, they would not have been able to hold Mr Rodgers to his notice period. Mr Rodgers’ solicitors responded saying that Mr Rodgers had resigned with immediate effect and that his early resignation had been accepted by Sunrise as evidenced by their stopping paying him and he would be relocating to the US to begin a new role. Sunrise responded saying that he was required to attend work and that they would pay his salary if he did.

Mr Rodgers’ solicitors then claimed that even if his immediate resignation had been ineffective, the non-payment of Mr Rodgers’ salary was a breach of contract by Sunrise which Mr Rodgers accepted as bringing the contract to an end.

The High Court held that Sunrise had not accepted Mr Rodgers’ breach of contract and that it had a good reason for not doing so, i.e. preventing Mr Rodgers from working for a competitor. It also held that in the circumstances, non-payment of salary did not amount to a breach of contract as Mr Rodgers’ right to payment was dependent on his willingness to work. The High Court granted an injunction requiring Mr Rodgers to observe the terms of his contract until 16 October 2014 and during this time not to work for a competitor. The effect was that Mr Rodgers would either have to be willing to work for Sunrise during this period, in which case he would be paid, or not work either for Sunrise or anyone else and be unpaid.

This case shows how an employer can achieve the holy grail of keeping an employee out of the market without having to pay for it. However, the key to this outcome was the employer’s insistence that the employee come to work. Many employers will take the view that once an employee has announced an intention to compete they do not want the employee carrying out his/her duties. If the employer orders the employee not to work, the employer must pay the employee. The principle of “no work, no pay” only applies where the employer wants the employee to work and the employee refuses.

Sunrise Brokers LLP v Rodgers [2014] EWHC 2633

[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_sidebar admin_label=”Sidebar” orientation=”right” area=”sidebar-1″ background_layout=”light” remove_border=”off”] [/et_pb_sidebar][/et_pb_column][/et_pb_row][/et_pb_section]

[et_pb_section admin_label=”Section” global_module=”136″ fullwidth=”on” specialty=”off” transparent_background=”off” background_color=”#ffffff” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off”][et_pb_fullwidth_code global_parent=”136″ admin_label=”Post Header”][Page_Header_Start] Employment Law News [Page_Header_End][/et_pb_fullwidth_code][/et_pb_section][et_pb_section admin_label=”section”][et_pb_row admin_label=”row”][et_pb_column type=”3_4″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]

The Courts cannot re-write badly drafted contracts

[post_details]

[Social-Share]

[post_tags]

An employment contract had been poorly thought through so that on a literal interpretation of the post termination non-compete restrictions within it, no protection was given to the employer. The Court of Appeal held that words could not be added to protect the employer’s interests in a badly struck deal.

Prophet plc develops computer software. Mr Huggett worked at Prophet as a sales manager. His role was to develop new business and manage accounts. His employment contract contained a non-compete restriction which prevented him from working for a competing business for 12 months. However, the clause was worded so that it would only apply to stop Mr Huggett working for businesses selling Prophet’s products. No other business sold Prophet’s products but competitors did make similar products which competed with Prophet for market share. Therefore, on a literal interpretation, the non-compete restrictions were useless.

Mr Huggett was head-hunted by one such rival firm and Prophet brought proceedings against him to prevent him working for them for 12 months (as per his employment contract).

Normally, if the literal meaning of a contract is unclear or absurd, the court will read the contract (adding words if necessary) to give it the commercial effect that a well informed observer would have understood the parties making the contract to have intended. On this basis, as we reported earlier this year, at first instance, the High Court read in the words “or similar to” Prophet’s products when defining a competitor. However, the Court of Appeal overturned this decision. It held that on this occasion the draftsman had chosen the wording of the contract with care but had failed to think about the practical benefit for Prophet. In other words, it was not that Prophet’s lawyer had used the wrong words so much that the company had struck a bad bargain. In these circumstances, it was not appropriate for the court to reword the contract.

Prophet plc v Huggett [2014] EWCA Civ 1013

[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_sidebar admin_label=”Sidebar” orientation=”right” area=”sidebar-1″ background_layout=”light” remove_border=”off”] [/et_pb_sidebar][/et_pb_column][/et_pb_row][/et_pb_section]

[et_pb_section admin_label=”Section” global_module=”136″ fullwidth=”on” specialty=”off” transparent_background=”off” background_color=”#ffffff” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off”][et_pb_fullwidth_code global_parent=”136″ admin_label=”Post Header”][Page_Header_Start] Employment Law News [Page_Header_End][/et_pb_fullwidth_code][/et_pb_section][et_pb_section admin_label=”section”][et_pb_row admin_label=”row”][et_pb_column type=”3_4″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”left” use_border_color=”off” border_color=”#ffffff” border_style=”solid”]

Court upholds 12 month non-compete restriction

[post_details]

[Social-Share]

[post_tags]

The High Court held that a 12 month non-compete restriction entered into as part of a sale of goodwill against a financial adviser was enforceable. The court allowed this long post-termination restriction on the basis that the goodwill agreement in place between Mr Cooper and Merlin was nearer to a business sale agreement than an employment contract.

Before working for Merlin, Mr Cooper had developed an extensive client list. Merlin Financial Consultants Limited hired Mr Cooper as a financial adviser. Mr Cooper and Merlin entered into two agreements. The first, an employment contract, contained a post-termination restriction preventing Mr Cooper from competing for six months after the termination of his contract but only prevented Mr Cooper from contacting clients introduced by Merlin. The second, a goodwill agreement, allowed Merlin to purchase the goodwill of Mr Cooper’s client base and receive future income from it. It contained a 12 month post-termination non-compete clause. However, there were drafting errors in the goodwill agreement as it did not define the clients that Mr Cooper was restricted from dealing with.

After working for Merlin for some years, Mr Cooper gave notice in order to set up a business with another former employee of Merlin. He was not placed on gardening leave. On the last day of his employment, Merlin wrote to Mr Cooper reminding him of his post-termination restrictions. Mr Cooper responded informing Merlin that he intended to continue to work for the clients he had brought to Merlin. Mr Cooper’s solicitors subsequently wrote to Merlin challenging the validity of the post-termination restrictions.

Merlin brought a claim for breach of contract against Mr Cooper claiming damages for loss of business. The High Court held that the non-compete restrictive covenant was enforceable against Mr Cooper and that he pay damages to Merlin. It found that the fact that the goodwill agreement did not define the clients that Mr Cooper was restricted from dealing with did not affect the validity of the restrictive covenant. While the court can be reluctant to grant long post-termination restrictions on employees, it found that a 12 month post-termination restriction was reasonable in this case because the goodwill agreement was nearer to a business sale agreement than an employment contract and therefore the parties had better equality of bargaining power.

Merlin claimed damages for two years after Mr Cooper left on the grounds that had he not breached his contract, they anticipated that they would have retained 100% of his clients in the first year and 70% in the second. However, the High Court did not agree with this quantification as even if Mr Cooper had complied with his non-compete clauses, some of the clients would have been likely to leave in any event because of their pre-existing connection with Mr Cooper.

Interestingly, the court did not accept Mr Cooper’s arguments that Merlin could have mitigated its loss by placing him on gardening leave and applying for an injunction to prevent his contact with clients. The High Court held that Merlin had acted reasonably and that it had been entitled to make use of Mr Cooper’s skills rather than place him on gardening leave and disrupt the service to its clients.

Merlin Financial Consultants Ltd v Cooper [2014] EWHC 1196 (QB)

[/et_pb_text][/et_pb_column][et_pb_column type=”1_4″][et_pb_sidebar admin_label=”Sidebar” orientation=”right” area=”sidebar-1″ background_layout=”light” remove_border=”off”] [/et_pb_sidebar][/et_pb_column][/et_pb_row][/et_pb_section]