The Government has today announced an Open Consultation on Measures to reform post-termination Non-Compete clauses in contracts of employment:

Read more »

In my blog piece on 28 February 2020, I looked at the state of mind required to make an employer liable in tort for inducing a breach of contract when it employs a person subject to post-termination restrictions. I reported by reference to the recent case of Allen v Dodd that in order to be liable the employer must know that it was inducing a breach. Knowledge that it might be is not sufficient.

I now turn my attention to the state of mind required to make an employer liable for breach of confidence when it receives a client list from a recruited employee.

Read more »

That was the question with which the CA were confronted this month in David Allen v Dodd & Co Limited [2020] EWCA Civ. 258.

Read more »

The Premiership season may have begun but the transfer window rumbles on. We, mere supporters, have to put up with the unedifying spectacle of highly paid “want away” players requesting transfers, refusing to train, feigning injury, and generally malingering. The great Bill Shankly once said that players like these were a menace to society and that he would lock them up if he could. In these more liberal days, fans still ask why it is that a “want away” player’s contract cannot be enforced to oblige him to play. The answer is that English contract law has a rule against the compelled performance of personal services, by employees. Read more »

It used to be thought that in exercising a contractual discretion accorded to it, in relation for example to a bonus or a share plan, an employer could, so long as it addressed the matter honestly and genuinely, make subjective qualitative judgments which would only be reviewable if they were perverse or illogical.
Braganza appears to have changed this.  The decisions since Braganza appear to show an intensification of the scrutiny given to the employer’s decision making process. Read more »

The Nuttall Review commissioned by the Department for Business Innovation and Skills and published on 4 July 2012 identified key barriers to the uptake of employee ownership and made a number of recommendations on how to reduce these barriers.

The barriers identified as disincentivising the uptake of direct employee ownership included the Companies Act provisions regulating the share buy back process.

On 18 October 2012, DoBIS published a Consultation Paper seeking views on how the government should implement employer owner status and a specific consultation document upon de-regulating share buy backs.

The problem

Where employee ownership is achieved by direct employee share ownership, rather than by an employee trust model, in order to avoid loss of ownership by the existing workforce, employee-owned companies need a mechanism by which to buy back shares owned by employees who are leaving or who have left the company in order to re-distribute them to new starters.

Buy back arrangements depend on the selling shareholder agreeing a price with the buying company either on departure or pursuant to a buyback agreement entered into at the commencement of employment as a condition of the employee being awarded shares by the company.

Although a number of former restrictions on a company purchasing its own shares -in particular those in s.151 CA 1995 – were repealed in Part 18 CA 2006, buy back still requires compliance with a number of provisions which regulate the process.

Companies may only buy back shares off-market if they have a buy back contract authorised by a special resolution of the shareholders in General Meeting (i.e. with 75% agreement, excluding the votes of the seller) (ss.693-695 Companies Act 2006). This provides protection to existing shareholders by preventing company directors from entering into share buy backs that are not in the company’s or other shareholders’ interests.

Whilst the finance for the purchase may come from either distributable profits or from the proceeds of issuing new shares, if a private company wishes to finance the buy back out of capital, the requirements include a declaration of solvency, auditors’ report, special resolution of shareholders and advertisement to creditors.

In addition, there are a number of other regulatory safeguards such as the director’s statutory duties and the ability of shareholders by special resolution to alter the company’s Articles to prevent buy backs.

The Nuttall Review concluded that these provisions were overly burdensome, and recommended that Government simplified them. The Government has accepted this recommendation and hence, the consultation.

In its recent judgment in Thinc Group-v-Armstrong [2012] EWCA Civ 1227, the CA has upheld a rare victory for that endangered species beloved of Lord Denning – the Collateral Warranty.

The CA upheld a finding at first instance that an oral assurance given to the respondents when they were recruited by the appellant to join it as financial advisers overrode subsequent express written terms.

Thinc sought to recruit the Armstrongs as independent financial advisers and take over their existing client base. In oral negotiations, Thinc offered the Armstrongs an upfront payment based on 50% of their last year’s gross income and assured them that the only condition attaching to this payment was that the Armstrongs stayed with Thinc for 3 years.

Subsequently, the parties entered into written agreements including a supplemental contract which provided for the Armstrongs to receive as a “disturbance allowance” or “supplemental payment” the sum based on 50 per cent of their last year’s gross income. The supplemental contract provided that this payment would become repayable if a repayment event occurred within three years of payment. The definition of repayment event included termination of the contracts with Thinc for whatever reason. The principal written contract gave Thinc the right to terminate without cause at any time.

Thinc terminated the Armstrongs’ contracts within 3 years and demanded repayment of the upfront payment.

The CA upheld the judge’s finding that the oral assurance amounted to a collateral warranty that as long as the Armstrongs did not terminate within 3 years, they were entitled to keep the upfront payment.  

As a matter of construction, that collateral warranty overrode the inconsistent signed written contracts because its effect was to misrepresent the primary contract. Relying on Mendellsohn-v-Normand Ltd and J. Evans & Son (Portsmouth) –v-Andrea Merzario (both printed condition cases), Rix L.J. found that:

 “It would be illusory for Thinc to say: “The only condition for our recovery of the supplemental payment is if you do not stay with us for 3 years” and then for its printed contract to enable it to reclaim the money at will within that period by mere dint of terminating the contract without cause.”

“Ultimately the question of construction, therefore, is whether the “no other

conditions” assurance meant that Thinc could recover the supplemental payment

because, even though the Armstrongs were willing to stay, they had been told to

go: or whether the words of the assurance “as long as they remained with [Thinc]

for 3 years there would be no other conditions” …entailed that the decision to go or stay was the Armstrongs’. In my judgment, in a choice between those two alternatives, there is no contest: the latter alternative must prevail. A construction that would permit Thinc to recover the supplemental payment on a whim (or, as bad, for lack of performance when the Armstrongs had been assured that there were no minimum performance requirements, and there were none) would be absurd. It would undo the very basis on which the Armstrongs were willing to join Thinc. It would, in the words of Devlin J, approved in subsequent cases in this court, make the assurance wholly illusory. Such a construction is so unreasonable, so uncommercial, that it is to my mind impossible.”

Notable points are that: 

• The written contracts did not contain an “entire agreement” clause though they did contain a “no reliance” clause regarding prior representations. It was said to have been conceded that this did not exclude the possibility of a collateral warranty. There was a finding of reliance.
• The court could not address whether the Interfoto onerous clauses rule could apply to the case of the signed written contract because it was not a part of the appeal. 
• The CA considered that the court was entitled to have regard to the business sense of the arrangements as a whole and was influenced by the facts that the supplemental payment was in effect the price for the goodwill of the Armstrongs’ business brought to Thinc and that the written agreements did not address the transfer of commission rights so that they could not in fact represent the whole agreement.  
• The Supplemental Agreement contained an unusual term that if there was a conflict between its terms and any other agreements between the parties, Thinc had the right to determine reasonably which terms should prevail. Dismissing the contention that this entitled Thinc to say that the written terms prevailed over the collateral warranty, Rix L.J. found Thinc’s reliance on the clause to be an “own goal” because the term itself contemplatred the existence of collateral contracts and it would be impossible for Thinc to “reasonably” determine that the written terms prevailed over the collateral warranty.