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Post-termination restraint clauses: when might a new employer be exposed to a claim for inducing breach?

9th June 2020

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…

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Leases in Lockdown: Covid-19 and Business Tenancies

22nd May 2020

Business Tenants struggling to meet rent and other lease costs are increasingly reaching creative agreements with their Landlords to reduce or suspend rent payments or draw down rent deposits. Meanwhile Landlords are facing increasing numbers of Tenants with cashflow difficulties, and consequential problems collecting rent. A proactive approach is best and there are still multiple options – especially critical where a landlord is competing with other creditors for priority. The Coronavirus Act 2020 The Coronavirus Act 2020 prevents the eviction of certain commercial tenants before 30 June, 2020, with a proviso that the end date could be extended. There are some key points to note: – The actual liability for rent (plus service charges, insurance etc.) is not affected by the Act. It still remains payable in full. The Landlord can still pursue unpaid rent immediately by other means; Even the right to evict a Tenant is not waived but just delayed, unless the Landlord agrees to waive the right to evict altogether in writing; Leases with a term of less than 6 months do not have the protection of the Act, nor do other tenancies such as a tenancy at will. Practical steps for Tenants in financial difficulties to consider Negotiate concessions with your Landlord, such as: – a temporary rent deferral or reduction; a permanent rent concession with the lease term extended; agreeing a realistic schedule for repayment of any arrears; drawing down against a rent deposit. Check whether your building insurance provides cover if you are unable…

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Covid-19, Debt Collection, and Winding Up Petitions

18th May 2020

In these unprecedented times for small and medium sized businesses, when lockdown and furloughing has left many unable to trade and earn profits at all, can it be proper for a creditor to choose to issue a winding up petition immediately, without first warning the debtor or using other remedies? And what action should a company facing a petition take when it would not hesitate, in an ideal world, to pay the debt in full but simply cannot do so when its income has dried up? We encountered a recent example from a debtor’s perspective. No prior warnings about what was admittedly a sizeable account balance, only a threat to cut off future supply of service.  No legal letter and no statutory demand. The creditor, presumably influenced to some extent by the debtor’s decision to break off the trading relationship for other reasons, went straight to the issue of a petition. It hardly needs to be said that for a company debtor, this is deadly serious. There is, of course, an initial grace period when a petition will remain a private matter between creditor and debtor. However, once that grace period is over, the creditor is at liberty to “advertise” the petition, and indeed under a duty to do so if it still wishes to pursue the remedy of winding up. Once the outside world knows – bankers, landlords, other creditors – the debtor company’s survival prospects may be bleak. “But surely petitions aren’t supposed to be used for debt…

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Restraint Clauses: Wrongful Competition and the Blue Pencil

22nd August 2019

There is an air of curiosity about Tillman v Egon Zehnder, the first employee competition case to reach the Supreme Court for 100 years. Ultimately, the employer (EZ) won its argument that two words could be “blue pencilled” from a non-competition clause, so that the unaffected content remained valid and enforceable. But there was a sting in the tail… The restraint in question involved the employee (T) agreeing that she would not “directly or indirectly engage or be concerned or interested in any business carried on in competition…” with EZ. In seeking to join a competitor, T argued that “or interested” made the entire clause too wide to be enforced, because it might have prevented her from owning even a single share in the competitor. It was not, however, her intention simply to own a single share or more than one. Her intention was to join the competitor, on 1 May 2017. The restraint, if unchallenged, would have expired on 30 July 2017. On 23 May 2017, EZ obtained an injunction to stop her joining the competitor. On 21 July 2017, the Court of Appeal overturned that decision and discharged the injunction. There were now 9 days left on the restraint. EZ chose to appeal to the Supreme Court, who heard the case 18 months later (!) on 21/22 January 2019 and delivered judgment on 3 July, formally restoring the injunction in relation to the long expired restraints. The basis of its decision was that the two offending words could…

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Small Claims Action Costs: our recent exception to the norm

21st February 2019

“I know my claim is for less than £10,000. The defence is nonsense and the defendant knows that. I’m told that I’m highly unlikely to recover any of my legal costs. But I can’t take the risk of losing because there are really important principles at stake…” Have you ever contemplated this dilemma when your small claims action is heading for trial? Do you wonder about the lesser evil, and end up contemplating settlement on terms that would stick in the craw and leave your opponent with an undeserved windfall gain? Or do you accept that a day in court with legal representation will come at a price? The court rules do indeed impose a “no costs” regime in small claims actions, to encourage an informal approach to their disposal. But there are exceptions. One of them is “costs as the court may assess by the summary procedure and order to be paid by a party who has behaved unreasonably”. What might count as unreasonable behaviour? We had a good example recently. It involved a defendant who claimed that he had never received goods worth just under £10,000. At the time, he showed none of the natural shock and outrage that might have been expected at their apparent non-arrival. He then declined to engage with a Royal Mail investigation, but waited a few weeks before clawing back his credit card payment, leaving our clients out of pocket. He also closed his mind to the fact that he had agreed terms…

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When workplace procedures are followed, and common sense is not

2nd July 2018

Imagine that you have had an argument with a work colleague that led to a “fact finding” interview with HR and a verbal reprimand then and there. It leads you to realise that you might have given offence, even if the colleague had been oversensitive in taking it. In turn, you decide to apologise to your colleague for having done so. Closure, surely. Would you then expect, two working days later, to receive an HR missive on company letterhead about this “incident”, summoning you to a disciplinary hearing on barely 24 hours’ notice and stating “the outcome of this meeting could potentially lead to your employment with the company being terminated”? Now imagine you are the employer. How would you feel about your HR manager escalating matters like that, and putting your company at risk of an unfair dismissal claim (actual or constructive) via an overreaction that might lose you a valuable employee? When we stepped in on an employee’s behalf in a situation like this not long ago, we ensured that the company stopped the disciplinary process in its tracks and withdrew the letter. But this was achieved only after the HR manager had sought to justify it with claims that the letter was “just a standard template”, and that the disciplinary meeting was needed to document the issues in case the oversensitive colleague ever made a complaint against the company at some point in future. Does this not seem to be taking “cover yourselves” to extremes, with little regard…

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Suspending Employees (2): No, It’s Not A Neutral Act

14th November 2017

Imagine you are an employee. You have been summoned to an unexpected meeting with HR and you have no idea why they want to see you. No sooner does the meeting start when you are told that you are going to be suspended pending a disciplinary investigation. You are handed a letter prepared in advance that describes the suspension as “precautionary” and “a neutral action”. Unless some long forgotten but undeniable misdemeanour has been found out at last, you are going to be hopping mad. Or deeply upset. Or both, especially if you are escorted from the premises with everyone looking on, or if the rumour mill kicks off as soon as your unexplained absence sinks in. Now imagine you are the employer. You have some instinctive feeling that suspension must be the right step. Or indeed a necessary step. You might hope that it would help kick the can down the road if the investigation was going to be tricky. Or you might not like the soon to be suspended employee very much, and you might believe that this was a good way to hold the exit door open, especially if the hinges were greased with a severance package (hint, hint). What does the law have to say about that? In the recent case of Agoreyo v London Borough of Lambeth [2017] EWHC 2019, the judge decided that suspension breached the implied term of mutual trust and confidence. If Ms Agoreyo, a teacher in charge of children aged between 5 and 6,…

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Suspending Employees: sensible step or overreaction?

28th July 2017

When might it be a bad idea to suspend an employee ahead of a disciplinary process or investigation? Or, from the other side of the divide, when might a suspended employee be entitled to conclude that the exit door is firmly open and the mind is firmly closed? Sometimes, suspension is a matter of plain common sense. If a fight has broken out in the workplace, or if there are clear signs of theft or sabotage, it is only right and proper to diffuse the heat or preserve the scene. As the ACAS Code confirms, suspension may be necessary in gross misconduct cases (subject, of course, to proof), or where there are risks to evidence or property, or responsibilities to others. Keep it short, paid and under review, and there should be no scope to allege that the process is tainted or that dismissal was a foregone conclusion all along. And yet we continue to hear of cases where an employee is suspended almost on a whim, as if it is a natural element of a disciplinary process or investigation, despite the absence of heat, exposure or vulnerability. Suspension, for instance, where a middle ranking or more senior manager has simply checked up on previous precedent when negotiating an exit package, or argued intemperately with a subordinate outside the workplace, or fallen out of favour with a controlling boss. “Oh, but we tell them that suspension is not considered a disciplinary action. Just as the ACAS Code recommends.” Hmm. How…

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Pre-Termination Negotiations: what happens if they break down?

14th July 2016

The opportunity for an employer to hold a pre-termination negotiation with an employee under s.111A Employment Rights Act 1996, to explore possible termination of employment on an off the record basis, is a very useful way to avoid prolonged workplace disputes. What happens, though, if the discussion breaks down, an unfair dismissal claim is made, and the claimant wants to tell the tribunal that there was such a discussion, without going into its contents (which the law plainly does not allow when an employer has behaved properly)? The Employment Appeal Tribunal’s recent decision in Faithorn Farrell Timms LLP v Bailey has resolved the point. The principle that allows genuine pre-termination negotiations to remain secret does not simply apply to the contents of the discussion. It extends to the mere fact that there has been such a negotiation. And it does not simply protect the direct discussions between employer and employee. It extends to internal discussions within the employer, for instance between a manager and an in house HR advisor. In this particular case, where it was alleged that the pre-termination negotiation had in itself involved sex discrimination, the employer chose initially to waive privilege for its own tactical reasons, and was not allowed to renege on this. But the principle of secrecy remains good. There will of course be practical problems. What if a tribunal notices an apparently inexplicable gap in the course of pre-claim correspondence, and seeks to hold that against one of the parties (for instance, in the…

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Religious Beliefs In The Workplace

14th April 2016

An employer decides that a devout Christian employee (VW) overstepped professional boundaries when she invited a Muslim junior to church events, prayed for her and laid hands on her during a 1:1 meeting, gave her a book promoting conversion to Christianity, and told her that she needed to let Jesus into her life. It issues VW with a written warning and recommends she underwent training. VW claims this was direct religious discrimination and harassment, especially given the oppressive nature of the sanction. The Employment Tribunal rejects VW’s claims. What did the Employment Appeal Tribunal decide when VW appealed? The appeal in Wasteney v East London NHS Foundation Trust was dismissed. One reason for the EAT’s decision to uphold the earlier ruling was that the employer’s decision was ultimately nothing to do with manifesting a belief (by reference to the language of Article 9* of the European Convention on Human Rights), and everything to do with improperly pressurising a colleague who did not consent to a campaign tantamount to grooming. This led in turn to a clear finding that “sharing her faith with a consenting colleague”, as VW put it, was a wholly inaccurate description of what actually took place. The colleague in question made serious complaints against VW in relation to unwanted and unwelcome conduct. What does this decision tell us? Some might think that it only stated the obvious, and that the only surprise is that it took up so much tribunal time. But there is an important point…

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