Case law: Variation of employment contract ineffective without reciprocal benefit to employee

Tuesday 13th January 2015

 

An employer could not enforce a non-compete clause against a former employee as it had been included as a variation of the employee’s original contract - but the employee had received no reciprocal benefit for agreeing to the variation.

 

An employee worked for a business that passed to new owners after being family-owned and run. He was asked to sign a contract of employment which contained ‘restrictive covenants’ - a six-month non-solicitation clause, and a 12-month non-compete clause. He had not previously had a written contract and, therefore, had not previously been subject to restrictive covenants.

 

He left to join a rival business run by his sons, and his old employer tried to enforce the covenants.  The court ruled that the covenants were not enforceable as the employee had not received any ‘real monetary or other benefit’ in return for agreeing that his contract be varied.

 

The business put forward several suggested benefits – including that the employee was unaware of when he signed the new contract, and others unrelated to his new terms of employment – but the court rejected them. It also rejected the suggestion that his continuing in employment amounted to a benefit for these purposes, as there had never been any suggestion he was at risk of dismissal if he refused to sign the new contract.

 

Operative date

  • Now

Recommendation

  • Employers asking employees to agree variations to their contracts should ensure the employee is offered some benefit in return (other than continued employment), that relates to the new terms and that the employee knows about, or risk the variation being ineffective.

Case ref: Re-Use Collections Ltd v Sendall & Anor [2014] EWHC 3852

 

 

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