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7 November 2014 0 Comments
Posted in Employment, Opinion

Employee’s departure in breach of contract does not stop covenants applying

Author headshot image Posted by , Partner

In Sunrise Brokers LLP v Rodgers the High Court has considered a quite interesting factual situation regarding the applicability or otherwise of restrictive covenants in circumstances where the employee has left but the employer considers he remained employed for his notice period.

Mr Rogers was a derivatives broker who, under the terms of his contract, could not give notice until 22nd September 2014 and the notice required at that point was 12 months. He was also subject to post termination restrictions. Mr Rogers sought to resign with immediate effect on the 27th March 2014. He wanted to leave to join a competitor; he left the office and never returned to work. The employer requested him to return to work but he would not do so, and so it contended that his refusal to do so was a repudiatory breach of contract which it never accepted and the employment remained alive. It argued however that it did not have to pay him since he refused to attend work. Mr Rogers argued that the non-payment amounted to a repudiatory breach of contract which he accepted; and as such the covenants fell away.

The Judge considered that the employer had the option to affirm the contract and had not accepted the repudiatory breach; the decision not to pay Mr Rogers did not amount to acceptance of that breach and that a contract of employment can continue even where no wages are being paid and the individual is not working. The Judge held that readiness and willingness to work, and being paid, are mutual obligations and without one there is no reason why they should have the other. The fact that one of these obligations is not performed does not mean that the rest of the contract automatically falls away; it simply means that the particular obligation linked to it is suspended until the other obligation is performed. Here, Mr Rogers had made it clear he had no intention of returning to work and consequently the employer had no obligation to pay him. However he would remain employed by Sunrise and subject to his post termination restrictions, even though he was not working. Furthermore the employer had no obligation to consider that he was automatically placed on garden leave (which, of course, would be paid). It was therefore held that the covenants would operate in accordance with his contract and he could not move to a competitor.

An interesting case for employers that if employees refuse to work their notice and as a result are not paid, the covenants can continue to apply.

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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