Thu, 08 Jan 2015
Anthony Korn considers the Court of Appeal ruling in Sunrise Brokers LLP v Rogers [2015] IRLR 57.
In Sunrise Brokers LLP v Rogers [2015] IRLR 57 the Court of Appeal upholds the High Court’s decision to grant an injunction preventing a derivatives broker from working for a rival for part of the outstanding period of his contract and part of the period covered by post-termination restrictions.
R was employed by Sunrise Brokers LLP as a derivatives broker. In 2011, he signed a new contract of employment with an initial term of 3 years from September 2011 and terminable by 12 months’ notice thereafter. The contract also included a standard ‘garden leave’ provision and a six months non-compete clause, which took effect on termination.
Whilst R was still employed by Sunrise he signed an agreement with one of their principal competitors (EOX) and agreed to start his new job in January 2014. On 27 March 2014, R advised his employer that he was going to leave and wanted to leave immediately. He was told to return to work until a relevant director was available. He ignored this request, left the office and did not return to work. R wrote to Sunrise to the effect that he would not start work for anyone else before September 2014 and he agreed to be on “garden leave” until then. Sunrise told him that it did not accept his resignation that he remained employed by the company, that his request to be placed on “garden leave” was “misconceived” and that it would stop paying him from September if he was unwilling to return to work. Sunrise said that it was prepared to treat R’s email as notice effective to terminate the contract after six months (on 16 October 2014)) but required him to work until then and refused to put him on garden leave. It later issued proceedings seeking to prevent R from working for EOX for the outstanding period of the contract and a further period slightly in excess of four months thereafter in accordance with the terms of the post-termination restriction (albeit somewhat reduced).
Granting the injunction, the High Court Judge rejected R’s contention that he had been constructively dismissed and, applying the Supreme Court ruling in Societe Generale London Branch v Geys [2013] IRLR 122, held that Sunrise was entitled to reject R’s repudiation of the contract, keep the contract alive and enforce its terms ([2014] IRLR 780).
Court of Appeal ruling
In the Court of Appeal, R sought to discharge the injunction on three grounds: first, it was submitted that the injunction should not have been granted because Sunrise refused to undertake to pay R during the outstanding period of notice. Secondly, it was argued that the effect of the injunction was to cause him to be unpaid and idle which, it was suggested, was contrary to pre-existing case law and finally, it was argued that the High Court Judge was wrong to ignore the previous period of ‘notice’ under the contract of employment in determining the reasonableness of the period of the post termination restriction. Each of these arguments were rejected by the Court of Appeal.
No work, no pay
The Court ruled that although it is common practice for an undertaking to be given to continue to pay an employee in such circumstances, the rational for this rule is that the court will not order the specific performance of an employment contract or grant an order which indirectly has that effect but in the present case applying Miles v Metropolitan District Council [1987] IRLR 193, Sunrise was entitled to refuse to pay R if he was unwilling to perform his duties.
Failure to pay did not amount to compulsion
According to the Court of Appeal, the underlying principle is that an injunction should not be granted where its effect will be to compel the employee to continue to work for the employer. In his judgment, Underhill LJ referred to the older cases as asking whether the effect of the injunction would be to reduce the employee to “idleness and starvation” if they did not return to work, although in a modern context, he described this terminology as “more colourful than helpful”. What is required is a “realistic” evaluation of whether the pressures operating on the employee in the particular case are in truth liable to compel the employee to return to work. The test is not whether the employee will suffer some hardship but whether the hardship is such that he or she would be compelled to return to work.
In the present case there was “almost” no evidence that not being paid for the remainder of the contract would cause R serious financial hardship and there was “meagre” evidence to suggest that his skills would be effected as a result of a short period of “idleness” (which, it was said, he would suffer in any event as a result of the agreed post termination restraints). Therefore it was not inequitable to grant the injunction for either of these two reasons.
Post termination restrictions
The Court further ruled that in considering the “compulsive” effect of the pre-termination injunction, it was not necessary to take into account both the balance of the notice period and the period of the post termination restrictions, not least because the principles governing restrictions during the currency of employment and the principles which apply to post termination restrictions are different. In the former, the obligations arise out of the employees continuing duty of fidelity whereas in the latter, the validity of the post-termination restrictions depends on whether or not the restriction is in restraint of trade.
In the present case the post-termination restriction was not unreasonable particularly as some of that period had been set off against his outstanding period of notice.
Some observations
In many ways this is quite an unusual case because the total period of the restraint was just 10 months from the last day on which R attended work, so in fact Sunrise did not attempt to enforce the full contractual fixed term period (plus notice) or the full 6 months post- termination restraint on competition. It is perhaps for this reason that R was unable to show that he would suffer hardship if the injunction was granted. But one of the lessons to be learnt is that if an employee seeks to assert that the injunction will have the compulsive effect referred to by Underhill LJ, then substantial evidence will need to be put forward to address that issue.
Another unusual feature of the present case is that Sunrise elected not to place R on “garden leave”. Had it done so, it would have been necessary to continue to pay R in accordance with the terms of the “garden leave” clause. In many cases, an employer will prefer to place the employee on “garden leave” to ensure that he or she is not in day to day contact with the employer’s customers or clients. The approach adopted by Sunrise will not apply in such circumstances. Furthermore, where an employee is placed on “garden leave”, the period of “garden leave’ may well be taken into account in determining the reasonableness of a post termination covenant (Credit Suisse Asset Management Ltd v Armstrong [1996] IRLR 450).
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