Derek Sutton
Joint Senior Clerk
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Employee Competition Bulletin
Consideration for Restrictive Covenants: Pickwell & Another v Pro Cam CP Ltd [2016] EWHC 1304 (QB)
10 Oct 2016
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The Court considered the principles by which adequacy of consideration for a contractual variation, or fresh contract is assessed. It applied the ‘only referable’ test from Solectron v Roper to the common circumstances in which new employees had initially signed to accept an offer of employment, with no restrictive covenants, and then shortly afterwards signed a contract of employment which included the covenants at issue.
The facts
The Claimants were trainee agronomists, learning to advise farmers on the purchase and use of agricultural chemicals, who had received a written offer of employment and had signed a document accepting that offer. Some weeks later, they signed a contract of employment containing the disputed restrictive covenants. After training with the Defendant by shadowing other agronomists and then working independently advising farmers for a short period, they were then offered employment by a different company and brought a claim disputing the validity and enforceability of the covenants. The Defendant counterclaimed for declaratory and injunctive relief to enforce the covenants.
The covenants
The Claimants challenged the validity of both a non-dealing and a non-solicitation covenant, each of 6 months’ duration. The first defined ‘relevant goods and services’ as those that were the same or of a similar kind to those that the Claimant had been dealing with in the 12 months prior to termination of employment. The second defined ‘relevant customer’ as any person, firm or organisation with which they had dealt in the period of 6 months before termination and who as a result of their dealing had bought goods or services from or been supplied with goods or services by the defendant company or any group company.
The issues
There were three issues: (1) whether there had been any or any adequate consideration in the contracts capable of making the covenants enforceable; (2) if there had been such consideration, whether the Defendant had a legitimate interest requiring protection when the Claimants entered into the covenants; and (3) were the covenants wider that had been reasonably necessary?
The findings of Judge Curran QC
The relevant legal principles were:
(1) The burden was on the Defendant to establish that the Claimants were bound by the contracts containing the restrictive covenants.
(2) If express consent to the contracts could not be established, the case would turn on the issue of implied or inferred consent.
(3) To establish such consent it is for the employee to show an “unequivocal act implying acceptance” per Jacobs LJ in Khatri v Cooperatiev Centrale RaiffeisenBoerenleenbank BA [2010] EWCA Civ 397, [2010] IRLR 715.
(1) The burden was on the Defendant to establish that the Claimants were bound by the contracts containing the restrictive covenants.
(2) If express consent to the contracts could not be established, the case would turn on the issue of implied or inferred consent.
(3) To establish such consent it is for the employee to show an “unequivocal act implying acceptance” per Jacobs LJ in Khatri v Cooperatiev Centrale RaiffeisenBoerenleenbank BA [2010] EWCA Civ 397, [2010] IRLR 715.
(4) In that regard, the EAT decision in Solectron v Roper [2004] IRLR 4 (approved in Khatri) was important, in particular [30] per Elias P, ‘is the employee’s conduct, by continuing to work, only referable to his having accepted the new terms imposed by the employer?'
(5) The intention of the parties and of the fact of acceptance or otherwise is, in accordance with the ordinary principles of contract, to be objectively ascertained.
(6) Even in the situation of an alteration to the advantage of the employee, the ‘only referable' test had to be satisfied; Khatri
(7) Where a person alleges inferred or implied acceptance, he must show that the benefit invoked was only available pursuant to the contract in question, and that the invocation of that contractual right was in unequivocal terms, such as to be referable only to acceptance of that contract; FW Farnsworth v Lacy [2012] EWHC 2830, [2013] IRLR 198.
The Judge’s conclusions
1) This case fell under the Woodbridge principle. It was distinguishable from Reuse Collections Ltd v Keith Sendall & others [2014] EWHC 3852, [2014] IRLR 226 which had concerned the adequacy of consideration where a long-serving employee was asked to enter into a contract of employment.
(2) The contract had been determinable on only one week’s notice during the probationary period. The evidence was that their employment would have been terminated if they had refused to sign it. There was no evidence that they had objected to its terms at the time of signature.
(3) The case could be analysed as either the formation of a completely new contract or as a variation of the existing terms of contract concluded by the acceptance of the offer letters.
(4) The Claimants’ conduct in continuing to work under the contract was only referable to their having accepted the new terms, which included the restrictive covenants. There was, therefore, sufficient consideration.
(5) In addition, the Defendant had conferred benefits upon the acceptance of the formal contracts which amounted to valuable consideration, by providing them with status and training in the field.
(6) The Defendant clearly had a protectable interest in goodwill and customer connections and the duration of the notice period and of the restriction was no more than was reasonable in all the circumstances.
(2) The contract had been determinable on only one week’s notice during the probationary period. The evidence was that their employment would have been terminated if they had refused to sign it. There was no evidence that they had objected to its terms at the time of signature.
(3) The case could be analysed as either the formation of a completely new contract or as a variation of the existing terms of contract concluded by the acceptance of the offer letters.
(4) The Claimants’ conduct in continuing to work under the contract was only referable to their having accepted the new terms, which included the restrictive covenants. There was, therefore, sufficient consideration.
(5) In addition, the Defendant had conferred benefits upon the acceptance of the formal contracts which amounted to valuable consideration, by providing them with status and training in the field.
(6) The Defendant clearly had a protectable interest in goodwill and customer connections and the duration of the notice period and of the restriction was no more than was reasonable in all the circumstances.
The Judge placed particular emphasis on the Defendant’s evidence that it would have terminated the Claimants’ employment if they had not signed the new contracts. The short initial notice period of one week lent weight to that evidence. Even though the new contracts did not contain reference to all the financial benefits that the Claimant subsequently received, it was the access to training, introductions to a customer base and support to obtain qualifications which constituted the relevant benefit.
The full judgment can be read here.
