Restrictive covenant case gives companies pause for thought

The case in question involved one Keith Sendall, who was a long-standing employee of Re-Use Collections Limited.

In February 2013, Mr Sendall was asked to sign an agreement which contained restrictive covenants – up until that point he had no written contract of employment. A month later, he resigned from his position.

The High Court had been asked to consider whether Mr Sendall was bound by the terms of the covenant and if he had been involved in setting up an active competitor to Re-Use.

While the Judge ruled that Mr Sendall had been in breach of his duties of fidelity and good faith, awarding damages as a result, it also found that the ex-employee was not bound by the restrictive covenants introduced shortly before his departure.

This was because he had not received any consideration for agreeing to enter into the contract.

Outlining the need for employers to offer substantial benefits in return for imposing new obligations, the High Court said: “The consideration must comprise some real monetary or other benefit (promotion for example) conferred on the employee for the purpose of causing the employee to agree the restrictive covenant and that it must be substantial and not nominal.”

This case highlights the importance of firms ensuring that restrictive covenants are properly drafted. For more information on our employment law services or advice on unfair dismissal cases, please contact our specialist Employment & HR team.