Varying terms and conditions – A salutary lesson to all

CarolineLeaver

Re-Use Collections Limited (Re-Use) v Mr Keith Sendall (1) and May Glass Recycling Limited (May Glass) (2) deals with some important issues that employers need to know about:

What can be considered specific consideration (i.e. “value given by the employer”) for the purposes of accepting new terms and conditions?

Whether an employer can enforce restrictive covenants against a former employee where there has been no specific consideration given?

Re-Use is a glass recycling business and had originally been a family run business (set up in 1922 by Mr Sendall’s grandfather).  The business left family ownership and was transferred into the ownership of Re-Use.  Mr Sendall joined the family business in 1980 and remained an employee until his employment ended on 1st May 2013.   He was manager of the depot at Dagenham, Essex.

Mr Sendall become embroiled in legal action with his former employer, because whilst employed by Re-Use he had directly been involved in setting up a competing business (May Glass) in breach of his duty of fidelity and good faith to Re-Use.

This case deals with a number of legal issues, including whether Mr Sendall owed a fiduciary duty to Re-Use (which it was decided he did not).  But for the purposes of this commentary, I am focusing on whether the express restrictions – confidentiality and restrictions in relation to post-termination conduct, including non-solicitation and non-dealing with restricted clients and prospective clients – in Mr Sendall’s contract of employment, could be enforced against him.

Mr Sendall was given a new contract in October 2012 (five months before he resigned) which included a number of new restrictions on him.  Mr Sendall debated the changes but eventually signed and returned a copy of the contract of employment to Re-Use on 22nd February 2013.

This issue centred not on whether there had been acceptance of the terms, but on whether consideration had been given (i.e. what had the employer given to Mr Sendall in exchange for him agreeing to new terms and conditions).

When restrictions are entered into after the start of employment, this is a variation to the existing contractual relationship and requires express consideration (i.e. something of value) in order for the restrictions to be enforceable.

Re-Use’s position was that consideration had been given since the new terms were introduced as part of a package under which benefits were conferred upon Mr Sendall, including a pay rise. Alternatively,  they argued that continuing to employ Mr Sendall after the contract was produced was good consideration.

The Court rejected Re-Use’s position on the following grounds:

  1. When the Court looked at the ‘package of benefits’ in detail it materialised that Mr Sendall had already enjoyed these benefits before the introduction of the new contract terms, or in the case of the life assurance cover being increased from 2x to 4x salary the Court found no evidence to link this change to the introduction of the new contract.
  2. Mr Sendall had received an increase in salary in January 2013 but on the evidence there was nothing to show that the salary increase was linked to entering the new contract (there were pay increases at that time company-wide rather than only for those entering the new contracts) and there was nothing to make it clear that the pay increase was conditional on accepting the new terms.
  3. Finally, in relation to the continuing employment point, the Court found that there was no evidence to link a continued willingness to employ Mr Sendall with his willingness to sign the contract of employment.  In particular, there was no evidence (expressly or implicitly) to show that a refusal to sign would or might lead to dismissal or another lesser sanction.

The Court found that no consideration had been given and the post-termination restrictions were unenforceable.  This could be potentially very damaging for many employers in similar situations.

So what do employers need to consider when introducing new restrictions during employment?

  1. Give consideration for the restrictions and ensure that this consideration is ‘new’ consideration and not just rehashing an employee’s existing benefits.
  2. The consideration needs to have value to the employee if it is going to incentivise them to accept the new terms – for example, a one off cash payment or John Lewis gift vouchers.
  3. You need to make clear in correspondence dealing with the introduction of the new changes that the consideration being offered is in return for the acceptance of the new terms and conditions.  Make the link.
  4. You need to ensure that the contractual documentation and letters dealing with the proposed changes support the business’s position and do not undermine it.  In this case, the new contract referred to the old salary rather than the new increased salary that the employee was supposed to be receiving in return for accepting the new terms. Another error was to refer in the pay increase letter (sent in December 2012) that aside from the salary increase all other terms and conditions remained the same.
  5. Finally, if you are going to look to rely on the ‘continued employment is good consideration’ defence then make sure that somewhere in the documentation you refer to the consequences of not accepting the new terms i.e. if you do not accept the terms, then your employment may be brought to an end.

Whilst these may seem to be “techie” points, this is the latest in a line of cases dealing with variations.  See our December blog here dealing with another case.