In the recent case of Willow Oak Development t/a Windsor Recruitment v Silverwood the EAT held that dismissal for refusing to sign new restrictive covenants could be a potentially fair for some other substantial reason (SOSR), notwithstanding that the covenants were unreasonably wide and potentially unenforceable.

Windsor Recruitment (Windsor) was an employment agency supplying staff in the health-care sector. Numerous successful attempts to poach Windsor's staff had been made by competitors. Windsor's legal advisers suggested the existing restrictive covenants were not adequate to protect against the competition they were now facing from ex-employees. In order to protect against competition and to prevent further loss of staff and confidential information, new contracts of employment were drafted containing a number of restrictive covenants.

Employees were presented with the new contracts in a busy working environment and told they had half an hour to read and sign them. They had no real opportunity to read and understand the contracts and were not warned that refusal to sign would result in dismissal. One employee requested an extra seven days to sign. This was refused and the employee was told that failure to sign by the following day would result in all employees not receiving commission already earned.

Several meetings took place but these were not reasonable or conciliatory and employees' queries were not answered or explained poorly. Those who did not sign were given notice of dismissal in a letter, which offered alternative employment on terms that were "no less favourable" with the exception of the covenants and confidentially clauses. The claimants brought claims for unfair dismissal.

Employment Tribunal

The Employment tribunal found that the new contracts contained unreasonably wide (and therefore unenforceable) covenants. It held that the refusal to sign the new terms could not amount to SOSR, and the dismissals were therefore unfair, as the employer had failed to establish a potentially fair reason for dismissal. It also found that even if there had been a potentially fair reason the dismissals were not fair in the circumstances, as a fair procedure had not been followed. Windsor appealed.

The Employment Appeal Tribunal

The EAT allowed the appeal, finding that that tribunal had been wrong to rule out the SOSR defence merely because the covenants were unreasonable. However it upheld the decision on the basis that the dismissal was not fair in all the circumstances as a fair procedure had not been followed. The EAT were of the view that the tribunal should decide whether it was reasonable to dismiss the employee for refusal to sign the contract, and that the reasonableness or otherwise of the contract must be looked at in context.

Fairness

The EAT gave the following guidance:

  • Where proposed covenants are clearly unreasonable and put forward as "all or nothing", this may make it easier for the tribunal to conclude that the dismissal was unfair.
  • Where the proposed covenants are arguably unenforceable there will be a greater need to consider the employer's approach, in particular the amount of time given to consider the proposals and any opportunity for the employees to take legal advice.
  • If the covenant is plainly reasonable then the tribunal will still need to consider the fairness of the procedure.

This decision reduces the risk for employers seeking to implement new restrictive covenants, as it is now possible for an employer to fairly dismiss an employee for failing to sign up to a new covenant that would be ordinarily unenforceable. Employers seeking to make contractual changes should consult clearly with employees, give them a reasonable opportunity to consider them and take advice and answer any queries.

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