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Breach of restrictive covenants
In Reuse Connections Limited v Sendall, there has been a full trial in the High Court regarding the matter of whether or not the Defendant was in breach of a restrictive covenant in setting up a business which competed with his employer.
One of the matters looked at was the issue of consideration for the introduction of new restrictive covenants during the employment relationship. The employer presented the employee with a new contract of employment containing restrictive covenants which were quite substantial, with no consideration provided for entering into this agreement. The court held that, for the covenants to be valid and enforceable, consideration must be given for entering into them, which must be more than just a nominal amount but must be something with a real monetary or other benefit, such as promotion. It held that the consideration given must substantial and that it was not enough for the employee’s continued employment to be the consideration. Therefore the covenant was found to be unenforceable. However the Defendant was found to be in breach of the implied obligation of fidelity and good faith because of his involvement in setting up a competing business while remaining employed. This was found to be the case even though there was no actual competitive activity until after his employment ceased. The fact that he took active steps to set up a company in competition, contacted potential customers and suppliers who were also customers and suppliers of the Claimant, with a view to soliciting their business was sufficient, in the view of the Court, to make him culpable. The Court considered that this was not a case of merely preliminary steps being taken, with the bulk of the preparation to compete taking place after the employment ended; it was a case of substantial steps being taken, including the approach of customers and suppliers, during the employment period.
This legal update is provided for general information purposes only and should not be applied to specific circumstances without prior consultation with us.
For further details on any of the issues covered in this update please contact Gemma Ospedale, Partner in Employment on 020 7583 2222.
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