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Restraint of Trade Clauses

15 Aug 2014, 11:08 by Edward Webb

Labels: contract, court, employee, employer, employment, trade-clauses

A restraint of trade clause is a term contained within a contract that seeks to limit a party’s ability to be employed by an alternative business. The most common type of restraint clause is contained within a contract of employment and is one which simply seeks to restrict an employee’s ability to work for another business during the term of their employment.
The next level of restraint of trade clause seeks to limit an ex-employee from working for a competitor for a specified period of time. Clauses such as this are prima facie void, they will only be uphold by the court if the employer can show it has a ‘legitimate proprietary interest to protect’ (LPI).
An LPI may be a trade secret, a list of existing clients, a manufacturing process or other important confidential information.
One of the leading cases on restraint of trade clauses is Faccenda Chicken Ltd v Fowler [1986] I.C.R. In this case Mr Fowler had previously worked for Faccenda Chicken Ltd, when he finished his employment he set up his own business. Faccenda Chicken Ltd sued Mr Fowler and argued he had information about the names and address of its clients. The court held that whilst there is a clear obligation not to disclose information that may cover a secret process or other information which is a sufficiently high degree of confidentiality to amount to a trade secret it does not extend to all information acquired by an employee during the time of their employment.
The question of whether a restraint of trade clause will be deemed enforceable or not is by no means a simple question. The court will look at a number of factors.
The first is whether the clause is an express or implied term (i.e. written into the contract of employment or not). If it is an implied term the court is not likely to enforce the contract but if it is an express term, the court will then look to see if there is a LPI (e.g. trade secret).
The next stage is to consider the extent of the clause. The court will want to see that the clause goes no further than offering the minimum protection necessary to protect the employer. If the clause is too restrictive it is not likely to be enforced. The characteristics of the clause that will be considered are the time restriction, geographical restriction and scope of the clause.
The above characteristics are taken on a case by case basis. I have previously dealt with a restraint of trade dispute in the aerospace industry. My client wanted to employee Mr A from its rival (Party B) however, Mr A had a 12 month restraint of trade clause. At first, it was argued this clause would not be enforced because whilst Mr A was aware of some trade secrets / client lists, these were largely historic. Party B protested and investigated it’s employee further, it transpired that Mr A was aware of a technical specification for a new product and had emailed this to himself the night before his resignation. Unfortunately this was not helpful. In any event, I was able to argue for a reduction in the restrain to trade clause to 5 months because it was clear this was all that was necessary to protect Party B’s interests.
Historically, restraining someone for a period of over 5 years had been enforceable (Forster & Sons Ltd v Suggett (1918) 35 T.L.R 87), indeed in more high value cases a clause restraining someone’s ability to work for 25 years in a particular industry has been held to be enforceable (Nordenfelt v Maxim Nordenfelt Guns Co Ltd [1984] A.C. 535).
Owing to the complexities of restraint of trade clauses, due consideration must be given when drafting the same. It may be that each department in a given business will need a different level of protection and the more senior the employee the more extensive the restriction.

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Third party harassment provisions in Equality Act to be repealed

19 Sep 2013, 13:02 by Priya Bakshi

Labels: barrister, direct-access, employee, employer, harrassment, legal-advice, public-access

Under section 40 of the Equality Act 2010 an employer can be liable if their employees are harassed by third parties where: 

  • The third party harasses the employee in the course of employment; 
  • The employer fails to take such reasonable steps as would have been reasonably practicable to prevent the harassment; and 
  • The employer knew that the employee had been harassed by a third party on at least two other occasions. 

This is now being repealed, with effect from 1 October 2013, under The Enterprise and Regulatory Reform Act 2013. However employers will still have a duty to protect workers. Employees who suffer harassment from third parties will not be left unprotected. Depending on the circumstances of the case, there will be other possible ways to make a claim using the exiting legal framework. Some include:

(1) Equality Act 2010 - the general harassment provisions remain intact.

(2) Protection from Harassment Act 1997 - provides the employee protection from harassment and imposes liability on the third party directly.

(3) Constructive Dismissal - could be argued that the harassment amounts to a fundamental breach of their employment contract entitling them to resign. 

Legal advice can be sought from a barrister through a solicitor, or alternatively directly from a barrister under direct access.

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Pre-termination negotiations to remain confidential

13 Jul 2013, 09:04 by Priya Bakshi

Labels: breach-of-contract, compromise-agreements, contract, discriminaton, employee, employer, employment-contract, employment-rights-act, unfair-dismissal

From 29 July 2013 section 111A of the Employment Rights Act 1996 will come into force. Employers will be able to negotiate and agree with the employee terms to end the employment contract without these conversations being admissible in a subsequent unfair dismissal claim. Such negotiations will therefore remain confidential. These compromise agreements, a legally binding contract, will be renamed ‘settlement agreements'.

However the change in the law, namely the confidentiality provisions, is conditional and will not apply to the following types of claims: 

  • Automatic unfair dismissals, such as whistleblowing, trade union membership or asserting a statutory right.
  • Claims of discrimination, harassment, victimisationbreach of contract or wrongful dismissal.

The ACAS Code of Practice on Settlement Agreements is set out to assist and guide both employers and employees with regards to this law reform. In particular, it sets out that confidentiality provisions will only apply where there is no "improper behaviour" by either of the parties. Where there is improper behaviour, confidentiality will only attach to evidence to the extent that the tribunal considers just. Examples of what constitutes "improper behaviour" have been provided in the ACAS Code of Practice.

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Discrimination: Amnesty International v Ahmed

19 Aug 2009, 12:44 by Pauline Walker

Labels: constructive-dismissal, employee, employment, race-discrimination, race-relations

On 13 August 2009 the EAT gave its decision in Amnesty International v Ahmed (UKEAT/0447/08/ZT). The case concerned Ahmed, a Sudanese woman, who was refused promotion to the position of Sudan Researcher by Amnesty as they believed that such an appointment would compromise their perceived impartiality and therefore their effectiveness. She resigned and claimed for race discrimination and constructive dismissal.

In their judgment, upholding the original tribunal's decision the EAT stated that this behaviour constituted direct discrimination contrary to sections 1(1)(a) and 4(2)(b) of the Race Relations Act 1976 as the decision not to appoint her was based solely on her ethnic origin and despite Amnesty's potentially justifiable reasons. (James v Eastleigh Borough Council [1990] 2 AC 751 applied). The claim for constructive dismissal failed.

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Direct Access: Compromise Agreements

03 Nov 2008, 10:48 by Robert Rees

Labels: compromise-agreements, contract, direct-access, employee, employment, employment-tribunal, lawyers

  As the recession looms there will be many employers wishing to relieve themselves of staff to save costs. Many will prefer their employees to leave voluntarily and to sign compromise agreements. These when properly made lawfully prevent employees going to employment tribunals to  contest the circumstances of their leaving. Employers will sweeten the pill by agreeing to pay and ex-gratia lump sum. Barristers through the direct access scheme are amongst qualified lawyers who are allowed to sign these agreements to make them lawful as preventing employees from going to employment tribunals.

In case an employee has in fact been guilty of some behaviour which would otherwise have entitled the employer to dismiss, prudent employers can include a clause or warranty to the effect that the money payable under the compromise agreement will not in fact be paid if it is discovered that indeed the employee has been guilty of something which would have given the employer the right to dismiss. Such a clause can be termed a warranty along these lines, the employee agreeing as follows:

"You warrant as a strict condition of this agreement that there are no circumstances of which you are aware or of which you ought reasonably to be aware which would constitute a repudiatory breach on your part of your contract of employment which would entitle or have entitled the company to terminate your employment without notice."

In Collidge v Freeport plc [2008] IRLR 697 an employee was found to have been guilty of financial impropriety prior to a payment of £445k, under a compromise agreement and so no payment was made by the employer. The Court of Appeal upheld the judge's unsurprising finding that such a clause was a condition precedent for payment under the compromise agreement and the employer did not have to make the payment. Mr C's warranty was a condition, a sina qua non, of the employer's obligations to pay. The warranty was a pre-condition of the employers liability to perform its obligations under the contract.

Writen by Robert Rees, Barrister at New Walk Chambers, specialising in direct access, employment law and compromise agreements.

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