It is often forgotten that the received wisdom as the 1990s wore on was that restrictive covenants and other restraints on free movement of staff would become a thing of the past for law firm partners and industry in general as the market went the way of the US. However, a High Court ruling this week is a further reminder that employers’ rights to insist on such terms – and how they are used – are still very much a reality.
The ruling in Sunrise Brokers LLP v Rodgers concluded that employees have no right to gardening leave and cannot simply ignore notice periods and covenant restrictions.
The issue decided by the court was whether an employment contract could be kept alive to enforce employee obligations while simultaneously not paying that employee for being unwilling to work for the company. The ruling, which has been touted as a victory for employers against staff who walk out of their job, has effectively forced a broker to remain out of work with no pay until January.
The case turned on the broker Michael Rodgers, who was subject to a fixed-term contract at Sunrise Brokers up to September 2014 followed by a six-month notice period. However, having accepted an offer of employment from a competitor at the start of March 2014, Rodgers walked out of the company on 27 March and handed in written notice on 16 April.
Deputy High Court judge Richard Salter QC rejected Rodgers’ argument that Sunrise had to pay him within the notice period as the price for restrictions placed on him and granted Sunrise an injunction enforcing restraints for a period of 10 months and ordered Rodgers to pay £168,000 in costs. Michael Duggan QC of Littleton chambers acted for Sunrise instructed by Twenty Twenty Solicitors.
Ronnie Fox, principal at law firm Fox, said: ‘The case highlights the importance of having well-written notice and covenant clauses in employment contracts. This is good news for law firms and good news for employers generally.’
Fox added: ‘I’ve known lawyers say to their employers that they have signed a contract with a competitor to go across the road starting the following week. They were sure they’d be released from their notice period or at worst put on gardening leave. Similarly law firm partners who ought to know better simply assume they can leave without serving notice. This case demonstrates that the reality is often quite different. We increasingly see law firms requiring their associates and partners to work out their notice periods in order to protect the firm’s client connections.
‘This case isn’t new law, but it reaffirms previous case law which makes clear that an employer is entitled to specific performance of notice provisions and that employees do not have a right to cut short their contractual notice period or to insist on being placed on garden leave.’
Relevant factors in this case include Rodgers’ admission that there was no reason for him to resign and Sunrise’s actions being considered reasonable as the company initially tried to agree a compromise. Such rulings suggests that wrangling over exit terms for departing partners will remain a fixture of the City legal market for a while yet.