Alerts

Restrictive covenants

In this week’s alert we look at an Employment Tribunal decision which determined whether an attempt to pressure an employee into signing up to an extended restrictive covenant agreement to prevent him from joining a competing business amounted to constructive unfair dismissal.

Ward v Fiducia Comprehensive Financial Planning Ltd

Mr Ward began working for Fiducia Comprehensive Financial Planning in January 2009. He was a highly regarded financial adviser and high performer who introduced a significant amount of business to the Respondent. Mr Ward became dissatisfied with his work/ life balance and was concerned that his mental health was suffering. Consequently, in May 2018, Mr Ward resigned giving 3 months’ notice.

The Directors of the Respondent had always regarded Mr Ward as a valuable employee and asked him to reconsider. Mr Ward said he would think about it. Having done so, he declined to change his mind.

Following this, one of the Directors, Mr Grimshaw had a meeting with Mr Ward and wanted to know where he was going to work after he left.  Mr Ward indicated that he was planning to go and work with Ms Catlin, a former colleague. Mr Grimshaw was concerned that Mr Ward might take away potential business. The discussion became increasingly hostile on Mr Grimshaw’s part and he told Mr Ward that if he took up employment with a competitor he would treat him in the same way he had treated Ms Catlin. Both knew what that meant. It was well known within the Company that Mr Grimshaw had been unpleasant to Ms Catlin after she had decided to leave. Mr Ward was reduced to tears by the meeting and phoned another Director, Mr Scott, to complain about his treatment.

Mr Scott was initially sympathetic, however at a meeting at his house on 30 May 2018, he became aggressive and also threatened Mr Ward with allegations of gross misconduct which were untrue.

On 4 June 2018, Mr Ward was then sent a draft restrictive agreement which would extend the existing restrictive covenants in his employment contract already in place from 12 months to 24 months after termination. The Respondent also threatened to claw back commission payments which had already been earned if Mr Ward didn’t extend his post termination restrictions. Mr Ward was very distressed by this pressure, however, he refused to sign.

On the 7 June, Mr Ward submitted a second resignation and brought a claim, alleging he had been unfairly dismissed.

Decision

The Employment Tribunal held that Mr Ward was constructively and unfairly dismissed and that his employer had without reasonable and proper cause conducted itself in a manner calculated or likely to destroy or seriously damage the relationship between employer and employee. The Tribunal ordered the Respondent to pay Mr Ward agreed compensation of £17,199.

Comment

Employers should note that if they have enforceable restrictive covenants, a fundamental breach of contract entitling an employee to resign, will mean that they lose the benefit of any post termination restrictions and the employer will not be able to rely on the post-termination restrictions.

If you have any queries in relation to restrictive covenants or any other HR queries please contact our employment team on 01228 552600 or 01524 548494.

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