Back

Our offices will be closed over the Easter weekend from 5:30pm on Thursday 28 March. We will reopen as usual at 9am on Tuesday 2 April.

Get in Touch Menu

Breach of contract – or not?

19 March 2013

Restrictive covenants in employment contracts are frequently the cause of disputes and have been described by Lord Justice Underhill as “the most powerful weapon in the employer’s armoury”.

This is because of the potentially significant impact they can have on employees’ activities after leaving a job. However, despite being included as a standard term in most employment contracts, the guiding principle regarding enforceability is that they must be no wider than is reasonably necessary to protect the employer’s legitimate commercial interests. Increasingly, courts have come to construe them narrowly, as a recent High Court decision demonstrates.

In Threlfall v ECD Insight Ltd, an ex-employee claimed a larger equity share in his former employer’s business and, in response, the employer counterclaimed that the employee was in breach of his restrictive covenants. Under the contract of employment, Mr Threlfall was entitled to a share in the equity of ECD in addition to his salary. This was dependent upon a period of minimum service and the contract also stipulated that if he left the company to pursue competitive activities, the equity share provision would be void. During his time at the company, Mr Threlfall developed a sideline in providing services in event mediation. When he left to work for Reuters news agency, he continued with event mediation in addition to his main job with Reuters. ECD alleged that this was in breach of the terms of his contract and therefore refused to pay the equity share.

The court ruled that Mr Threlfall had not left his job for the sole purpose of continuing to provide event mediation and therefore found that he had not forfeited his entitlement to his share. More importantly, the court applied the 2010 decision of Phoenix Partners Group LLP v Asoyag and ruled that, as no one else provided the mediation services at ECD after Mr Threlfall left, the company could not claim that he was performing activities which impacted upon their business.

This case is of particular relevance to small employers where there may only be one person performing certain tasks in the business. Restrictive covenants are a complex and increasingly litigious aspect of employment contracts and should always be drafted in a manner which balances the interests of the company with the rights of the employee to seek employment in their area of expertise.

For more information please contact our employment law team. 

Contact us

Disclaimer: All legal information is correct at the time of publication but please be aware that laws may change over time. This article contains general legal information but should not be relied upon as legal advice. Please seek professional legal advice about your specific situation - contact us; we’d be delighted to help.
Contact
Matthew Clayton MA LLM (Cantab), CIPP/E
Partner
View profile
Mathew Clayton
Related services
Share this article
Resources to help

Related articles

Business Immigration: Significant changes to take place in April 2024

Employment & business immigration

Last December, the Home Secretary announced a five-point plan to reduce immigration in the UK, with most measures to be implemented early this year. Today, it can be said that…

Klára Grmelová MGR (LLM Czech)
Solicitor

Constructive dismissal & delayed resignation

Employment & business immigration

Constructive dismissal and delayed resignation can prove to be difficult situations for some employers. Our team of experts look into a case that could help when looking to tackle issues…

Hayley Ainsworth BA, MSc
Associate, solicitor

Embracing neurodiversity at work

Employment & business immigration

We’re supporting Neurodiversity celebration week, which takes place from 18th to 24th March 2024. Here, our employment law team share insight into neurodiversity in the workplace and what employers can…

Jenny Hawrot LLB (Hons)
Partner
Contact us