Restrictive Covenants: Constructive dismissal, garden leave and non-compete clauses

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Restrictive Covenants: Constructive dismissal, garden leave and non-compete clauses

Published 9 July 2020

The High Court has upheld a six month non-compete clause where, taking garden leave into account, the ex-employee was restrained for a total of twelve months.

THE FACTS

Mr Leonard was employed as Head of Desk at an interdealer brokerage firm, Square Global. He resigned without notice, arguing that he had been constructively dismissed and was therefore neither bound by his notice period nor by any post termination restrictive covenants. By the time of his resignation, he had been in advanced discussions for several months with Market Securities, a rival financial services business, about joining Market Securities. 

Mr Leonard’s contract of employment contained a six month notice period, retaining the right to put him on garden leave during his notice, and six month non-compete post termination restrictions (PTR). The contract did not stipulate that the period of the PTR should be reduced by any period spent on garden leave. If enforceable, Mr Leonard could therefore be restricted from working for a competitor for a total of twelve months after giving notice. 

Square Global brought a claim to enforce Mr Leonard’s notice period and the PTR. Mr Leonard counter-claimed for constructive dismissal, alleging that Square Global’s course of conduct (including allegations of bullying, unfair allocation of remuneration, an aggressive environment and failure to deal with grievances) over several years had breached the implied term of trust and confidence. He also disputed the validity and the enforceability of the PTR.

The High Court held that Mr Leonard’s claim of constructive dismissal failed. The judge commented that Mr Leonard’s evidence in parts was unconvincing and that, in the months leading up to his resignation, he had been trying to build up evidence which might be useful in an employment dispute. The judge said that Mr Leonard’s actions during the final months of his employment should be “viewed through the prism of Mr Leonard’s parallel private discussions with Market Securities”. Because the constructive dismissal claim had failed, Mr Leonard was bound by his six month notice period, during which time he remained employed by Square Global and could not work elsewhere. 

In relation to the PTR, the High Court found that a six month period was reasonable, in this case, and went no further than was necessary to protect Square Global’s interests. Interestingly, the Court took into account that Mr Leonard had entered into a contract with a previous firm which included a six month non-compete restriction, and that the contract he had negotiated with Market Securities also included a six month non-compete.

The High Court also considered whether the lack of a contractual provision setting garden leave off against the PTR prevented the PTR from being enforceable. It held that, while this was a relevant consideration, it was not fatal to the enforceability of the PTR.

Mr Leonard was therefore prevented from being employed by Market Securities for a total of 12 months from his resignation.

WHAT DOES THIS MEAN FOR EMPLOYERS?

Courts will, as this case shows, be alive to the possibility that individuals may manufacture constructive dismissal claims in an attempt to escape notice periods and restrictive covenants.

This case gives useful confirmation that contracts do not necessarily have to provide that covenants should be reduced by any period spent on garden leave. However, when drafting restrictive covenants, employers should consider the total period of restriction needed to protect their business interests, taking garden leave into account.

Square Global v Julien Leonard QB-2019-004330

Authors

Ceri Fuller

Ceri Fuller

London - Walbrook

+44 (0)20 7894 6583

Zoë Wigan

Zoë Wigan

London - Walbrook

+44 (0)20 7894 6564

Hilary Larter

Hilary Larter

Leeds

+44 (0)113 251 4710