PAT Systems v Neilly [2012] EWHC 2609
Published on: 12/10/2012
Issues Covered:
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Background
In June 2000, Mr Neilly began work as a salesperson for the claimant software company on a salary of £35k p.a. plus bonus. In July 2005, Mr Neilly was promoted to Director of Global Accounts (not a statutory directorship), starting at £80k p.a. plus bonus and extras. His total remuneration in the tax year 2011-2012 was £191,170. Mr Neilly‟s original contract of employment contained a restrictive covenant clause of 12 months after the end of his employment, during which he was not allowed to join a competitor. Upon his promotion, he agreed that his terms would be unchanged, save his job title, duties and remuneration. He signed an endorsement to the letter he had received which confirmed these changes in the following terms: "I agree to the variation of my terms with PAT Systems, which are stated in this letter and I acknowledge and agree that all other terms and conditions outlined in my original documentation remain unchanged."In April 2012, Mr Neilly gave three months notice of his resignation, stating that he had accepted an offer of employment from another company in the same field as PAT Systems. PAT Systems then wrote to Mr Neilly stating that if he began to work for the rival company, he would be in repudiatory breach of his employment contract. After Mr Neilly tendered his resignation PAT Systems summarily dismissed him. 10Reaffirming the principle that the reasonableness of a restrictive covenant must be judged at the time it was entered into and not at the time an employer seeks to enforce it, The Court held that the restrictive covenant was unacceptable at both Mr Neilly‟s original post and at his executive position.The Court held that the covenant was unenforceable when signed and that a more positive and unequivocal acceptance of the restrictions would have to have had taken place for the clause to enforceable upon a promotion. Mr Justice Underhill stated:“A general acknowledgment, or even "acknowledgment and agreement", by the defendant that his previous terms "remain unchanged" cannot in my judgment be construed as an agreement to reinstate a term which was in fact (whether or not this was appreciated) a nullity. It simply does not convey an intention to make a fresh start in the relevant respect. If a restrictive covenant is void when initially entered into, it is wrong that it should be, so to speak, revived save where that is unequivocally the contractual intention. Note also his comments on policy:"That seems to me the right approach in principle, but it also seems right on grounds of policy and practicality. Contracts of employment are very frequently varied over their lifetime, sometimes explicitly, sometimes by conduct, and in a variety of different respects and using a variety of different mechanisms with varying degrees of formality. It would be very undesirable that every such change could in principle have the potential to revive a defunct restrictive covenant. That would conduce to complexity and uncertainty. Employees when they agree to a restrictive covenant are entitled to know their position; indeed in an ideal world they would take legal advice, though I accept that that is not normal or indeed realistically practicable for any but the most senior and well-remunerated. The occasions when such an assessment, with or without advice, is required should be as few and as well-marked as possible. Similarly, in a case where an employee needs to know where he stands – typically because he is contemplating a change – it is undesirable that he or his advisers should have to survey his whole employment history since the date at which he entered into his original contract in order to consider whether an initially unreasonable contract could have changed its character. Again, it ought to be necessary to look only at the most recent date at which such a covenant has been explicitly entered into." (Para 36-37).Given that the covenant was unenforceable, the Court held that Mr Neilly‟s dismissal was wrongful.http://bit.ly/VyeRzi
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The information in this article is provided as part of Legal Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article.
This article is correct at 12/10/2012
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