Protecting your business from departing Employees
In a recent case the Court of Appeal had to decide the question of whether an employer can obtain an injunction to enforce an employee’s duty of loyalty when the employee refused to work out the length of their contract and notice.
Employment contracts between employers and employees are formed by either express agreement or they are implied by conduct. Express terms can be agreed in writing or orally.
There are various terms which an employer can incorporate into an employment contract which are designed to provide protection to the business in the event that the employee leaves to work for a competitor or to set up their own business.
The best way to protect your business is to have a combination of post-termination restrictions, a lengthy period of notice and the potential to place an employee on garden leave, should you wish to do so.
Mr Rodgers was the employee in this case and he was employed by Sunrise Brokers LLP (Sunrise) who are an inter-dealer broker. Mr Rodgers was employed as a derivatives broker.
Under the terms of Mr Rodgers contract with Sunrise he was required to give 12 months’ notice. His contract also included the right to place him on garden leave and post-termination restrictions.
When Mr Rodgers was offered and agreed terms of employment with a principal competitor broker of Sunrise he refused to give contractual notice or continue to work for Sunrise. He informed Sunrise verbally that he was leaving, went on holiday and did not return to work.
Sunrise stopped paying Mr Rodgers as a result and sought an order from the High Court that he was still employed by them and an order restraining him from working for a competitor during the notice period and during the further period of the restrictions in his contract.
The interesting question that arose in this case was whether the employment contract could be kept ‘alive’ even though Sunrise stopped paying Mr Rodgers.
The High Court decided that even though Sunrise had stopped paying Mr Rodgers the contractual relationship remained intact and Sunrise were entitled to cease paying as Mr Rodgers was no longer performing his role.
Therefore Mr Rodgers obligations to Sunrise continued and the Court ordered that Mr Rodgers be restrained from working for a competitor or contacting former clients for a period of 10 months. This period took into consideration a period of handover for what would have been the notice period, and the 6 month period of the restrictive covenants.
It was a costly decision for Mr Rodgers as he was unable to work for the competitor for 10 months, and he was also ordered to pay Sunrise’s legal costs of £168,000.
Mr Rodgers appealed to the Court of Appeal who upheld the injunction, and stated that;
Sunrise were entitled to decide whether or not to accept Mr Rodger’s breach, or to keep the contract going. Because they decided not to end the contract it continued and Mr Rodgers remained an employee.
An employee’s right to be paid is dependant on their willingness to work and if Mr Rodger’s was not willing to work he was not entitled to be paid, or to terminate the contract because of the failure of Sunrise to pay him.
The Judge’s decision to grant an injunction was correct and accordingly Mr Rodger’s appeal failed.
Points to note
You can stop an employee leaving without notice as long as you have a well drafted contract.
This case is a great example of the protection that can be available to businesses if you have the right clauses in your employment contracts from the outset. In this particular case it was a crucial decision for the business, which if they had not handled correctly at the start of the employment relationshi, could haev proved costly.
You can read the full judgement here Sunrise Brokers LLP v Rodgers