Post-termination restraint clauses: when might a new employer be exposed to a claim for inducing breach?
Posted on 9th June 2020 at 08:38
Imagine that you are about to take on a new and high ranking employee, who has spoken of an impressive list of contacts and a solid customer following. You become aware that this potential new recruit may be bound by duties to a current employer to leave them alone for 6 or 12 months, and wonder if the promised wave of new business might be a myth. But your commercial instinct is to take the risk, offer the job, and hope to benefit from the contacts and the customer following immediately.
How far might you be exposed for the tort of inducing breach of contract, if the soon to be ex-employer sues your bright new star for actual breach of contract?
One immediate suggestion: obtain legal advice of your own and do so quickly. As a recent decision of the Court of Appeal* has demonstrated, this could make all the difference between facing secondary liability of this kind, and avoiding it altogether.
How come? There’s a key principle. In order to be liable for the tort of inducing breach of contract, you must know that you are inducing a breach. “Are inducing” is not, in this context, to be equated with “might be inducing”.
You’re likely to have some issues to raise.
“But there it is, in black and white. ‘You shall not deal with our customers for 12 months after you have left.’ What’s the point in employing someone who cannot bring us a following?”
Good point. You have explained what you think that sentence means in plain English. You think you would be liable to the ex-employer if you offer the job and reap any advantage from the following. So you now need advice on whether the clause stands up. Does it protect a legitimate interest? Is it reasonable in scope and duration? Tell us more – we can help…
“No need. The new recruit has already been given advice that the restraint is no good.”
That won’t do, unfortunately. You cannot rely on second hand advice.
“OK then, if you were to advise me that the restraint is unenforceable, would that help?”
Definitely. In a situation like that, you will not know that you are inducing a breach. The advice would have neutralised any thought of that kind. But we may not be able to give a 100% guarantee…
“Well, that’s no good to me. I’m going to lose out…”
Not necessarily. Look again at the test. We all know that there are shades of grey in every area of business and commerce. We may be able to advise you, on balance, that it is more likely than not that the restraint clauses are ineffective and unenforceable. If so, you will be able to act on this advice without exposing yourselves to liability for inducing a breach. Even if your new recruit was successfully sued by the ex-employer for breaching the restraints.
“That’s interesting. So legal advice would be an extra layer of protection for me?”
Indeed it would. Do you need advice on a similar situation to this one? Contact David Cooper on 0121 325 5402 or via email@example.com for more advice.
* David Allen t/a David Allen Chartered Accountants v Dodd & Co Ltd  EWCA Civ 258: https://www.bailii.org/ew/cases/EWCA/Civ/2020/258.html
Tagged as: Solicitor
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