19 July 2018 - Events
Post-termination restrictions introduced after an employee has started work were generally thought to be enforceable only where the employee is given a tangible benefit (e.g. a pay rise) in return. The High Court's decision last week in Pickwell & Nicholls v Pro Cam CP Ltd, however, has cast this into doubt.
The judgment appears to suggest that introducing an employee to clients, and thereby providing them with the opportunity to develop their profile in the market, could be a sufficient benefit – meaning that a restriction which is otherwise reasonable in its scope, would be enforceable.
However, the decision runs counter to generally accepted notions (which were apparently confirmed by the High Court in Re-Use Collections Ltd v Sendall in 2014); whilst it gives hope to employers who are looking to enforce restrictions which were introduced without obvious benefits in return, the decision should not be relied upon when planning the introduction of new restrictions.
This particular case involved two trainee agronomists (aka crop scientists) – James Pickwell and Molly Nicholls. Both employees were initially employed under brief offer letters. They were subsequently (but prior to passing the relevant professional qualifications) asked to sign fuller contracts, which included six month restrictions preventing the solicitation of, or dealing with, Pro Cam's clients.
Some time after qualifying as agronomists, Mr Pickwell and Ms Nicholls resigned in order to work for a competitor of Pro Cam. Pro Cam protested and Mr Pickwell and Ms Nicholls applied to the Court for a declaration that the restrictions were invalid.
Their application failed and the restrictions were enforced – partly as the Court found that Pro Cam had provided a sufficient benefit, in exchange for Mr Pickwell and Ms Nicholls agreeing to be bound by the post-termination restrictions. Whilst earlier decisions have held that this exchange must involve a pay-rise, a one-off bonus, a promotion, or some other clear benefit, the Court here decided that it was sufficient simply to provide employees with continued employment and access to clients so they could 'make progress in their careers'.
- The principles set out in Pro Cam are likely to be challenged (and the decision may yet be appealed), and are unfortunately not a sound model for the introduction of new terms.
- Introduce post-termination restrictions at the start of the employment relationship. At this point, the employment offer itself constitutes the employer's side of the bargain; it is harder to create binding restrictions once the employee has started work.
- Use the opportunities provided when promoting an employee or awarding a non-contractual bonus or pay rise. This is a good time to amend or introduce post-termination restrictions, as there will be a benefit which can be linked to the new restrictions. The new benefit should be clearly expressed, in writing, to be conditional on the employee agreeing to the restrictions.
- And of course…
- Don't overreach – limit the restrictions to cover only what really needs to be protected.
- Consider supplementary ways to retain employees, such as deferred incentive arrangements.