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Imposing Restrictive Covenants

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The EAT has just handed down an important decision in Windsor Recruitment v Silverwood, overturning its previous approach to imposing restrictive covenants in Forshaw v Archcraft.

Windsor Recruitment wanted to impose restrictive covenants on its workforce. It dismissed some employees who refused to accept them. It had faced several successful episodes of poaching both staff and business by its competitors, and there was clearly a good business reason for imposing the restrictive covenants.

The employment tribunal held that the covenants were too wide and therefore unenforceable. It held that the employer could not, therefore, establish 'some other subtantial reason' for the dismissals, which were consequently unfair.

The EAT (Burton P. presiding) overturned this decision (also overturning the previous EAT authority of Forshaw v Archcraft, which was on almost identical facts).

Burton P. stated that dismissal for refusing to accept restrictive covenants is capable of being 'some other substantial reason' unless the covenants were "in fact a cover or a ruse to get rid of the employee" (para. 23).

The consideration of the reasonableness of the covenants then comes in not when deciding the reason for the dismissal, but instrad deciding the general 'fairness' issue. The EAT set out the approach for tribunals at para. 24, namely:

  • if the proposed covenant is plainly unreasonable and is not severable, it will make it easier for a tribunal to conclude there was unfairness;
  • if the proposed covenant is arguably unenforceable (and/or severable), then consideration must be given to the employer's approach to the matter; in particular, the amount of time given to employees to consider the proposals and the opportunity given for legal advice;
  • if the covenant is plainly reasonable then, whilst consideration of procedure is still necessary, it will be easier for a tribunal to conclude the dismissal is fair.

(Note: the unfairness of the dismissal was actually upheld on separate, procedural grounds).

Windsor Recruitment v Silverwood