What options are available to an employer which is (i) faced with an employee who purports to resign without notice asserting that he or she had been constructively dismissed, but (ii) considers the employee's actions to be a contrivance with the intention of escaping the post-termination restrictions to which he or she is subject, so that they could immediately commence employment with a rival employer?
This was the key question faced by Square Global Limited ("Square") following the resignation of one of its senior and highest producing brokers, Julian Leonard ("Mr Leonard").
Mark Levine, Matthew Wood and Chris Breaks succesfully acted for Square in the High Court proceedings which followed.
Mr Leonard resigned without notice on 11 November 2019 asserting that he had been constructively dismissed as a result of what he considered to be a number of repudiatory breaches of his contract committed by Square. The alleged breaches took place over a period of several years. If Mr Leonard was correct in his contentions, he would have been released with immediate effect from his contractual obligations, including his six month notice period and post-termination restrictions of the same duration. Square did not accept that it had acted in repudiatory breach and wanted to ensure that Mr Leonard complied with his contractual obligations.
Square adopted the same approach as Sunrise Brokers LLP (coincidentally a rival broking house to Square) had successfully done when faced with a similar set of facts in a case which went before the Court in 2014. Accordingly, on receipt of his resignation, Square explained to Mr Leonard that:
- It had not acted in repudiatory breach of contract as Mr Leonard had alleged (or at all).
- It was treating Mr Leonard's resignation as a resignation on notice pursuant to the terms of his contractual notice period, such that Mr Leonard should return to work until the expiry of his notice period.
- Mr Leonard was himself in repudiatory breach of contract by being absent from his duties (i.e. he was refusing to attend work) without authorisation, but that Square was not accepting his breach.
- Mr Leonard was not entitled to be paid whilst he was absent without authorisation but he would be paid again if he returned to work.
Facing the prospect of an application by Square for interim relief, Mr Leonard agreed to undertakings that he would comply with his obligations to Square pending a speedy trial. At the speedy trial, the High Court determined that Square had not committed a repudiatory breach of Mr Leonard's contract, and accordingly granted the following primary relief to Square such that:
- Mr Leonard remained an employee until the expiry of his six month notice period, and continued to be subject to his duty of fidelity; and
- Mr Leonard remained subject to his post-termination restrictions (which were held to be valid and enforceable) and, importantly, that those restrictions did not start running until the end of his notice period.
The case highlights the difficult decisions faced by employers and employees in this type of situation.
Square succeeded in defeating Mr Leonard's contention that it had committed a repudiatory breach of his contract of employment, and was therefore able to enforce the full extent of its contractual protection. Accordingly, the Court decided that Mr Leonard remained an employee of Square for his six month notice period (albeit he was not paid for this period in view of his refusal to attend for work). Thereafter, Mr Leonard was restricted from joining his new employer for six months for the duration of his post-termination restrictions. As a result, and despite the fact that Mr Leonard's covenants only applied for a duration of six months, he was effectively prohibited from commencing his new employment for a period of 12 months by virtue of his notice period and post-termination restrictions running concurrently and not simultaneously.
For employers, there are a number of key learnings from the case:
- The importance of taking early legal advice, and considering all of the options available when faced with this fairly common situation in the financial services industry.
- A reminder that, when an employee walks out and asserts constructive dismissal, employers do not have to accept the employee's repudiatory breach and can choose to keep the contract alive. This will be particularly important when dealing with employees who have long notice periods or lengthy fixed-term contracts.
- A further reminder of the high bar faced by employees seeking to establish that their employer has acted in repudiatory breach, requiring the Court to accept that the employer has "clearly shown an intention to abandon and altogether refuse to perform the contract”.
For employees, the key learning lies perhaps in obiter comments contained in the judgment of Jonathan Turner QC, sitting as a High Court Deputy Judge.
Although it did not fall to be determined on the facts of this case (the primary finding being that there was no repudiatory breach of contract by Square), the judgment grappled with the question of whether an employee is able to rely on repudiatory breaches of which he or she is not aware at the time of resignation, as breaches by the employer which have the effect of rendering the post-termination restrictions unenforceable. In obiter comments, Jonathan Turner QC, considered that an employer's repudiatory breach would have that effect, even if the employee was not aware of it at the time of resignation (albeit an employee could not, of course, rely on that conduct in any claim for constructive dismissal as they would not be able to show that reason was causative of their resignation).
This follows similar obiter comments in earlier cases, and suggests that the Court is likely to look favourably on an employee who can establish that their employer acted in repudiatory breach even if that breach played no part in the employee's decision to leave. Employees would therefore be advised to cast the net widely and consider other repudiatory conduct which their employers may have subjected them to beyond that they had knowledge of at the time of resignation.
Drawing on our deep expertise having acted in a number of the landmark cases on employee competition in recent times, members of the Employment team have authored the chapter entitled 'Restraint on competition' in the pre-eminent employment law text 'Harvey on Industrial Relations and Employment Law'. If you have any questions about how you can protect your business in bringing or defending employee competition claims, please get in touch with one of our team members.