Consideration for Restrictive Covenants

In Re-use Collections Limited v Sendall & May Glass Recycling Limited 2014 EWHC 3852, the High Court considered the enforceability of restrictive covenants introduced during the course of employment and in respect of which no specific consideration had been given.

Mr Sendall had been employed by a family run business without a written contract of employment for 33 years.  Following a takeover of the business by Re-use Collections Ltd ("Re-use") in 2013, he signed an employment contract containing various post-termination restrictive covenants.  Shortly afterwards, he resigned to join a competitor and Re-use sought to rely on the restrictive covenants.  The High Court held that the covenants were unenforceable because no new consideration had been given to Mr Sendall when he entered into them.  The Court clarified that to be valid, restrictive covenants introduced during the course of employment must be supported by consideration of ‘some real monetary or other benefit'.  Re-use argued that this had been given in the form of a pay rise and other benefits contained in the new contract. However, the Court found that these did not amount to valid consideration because: (i) there was no express link between the pay rise and the acceptance of the restrictive covenants as one was not conditional on the other; and (ii) Mr Sendall already enjoyed the other benefits which were incorporated into the contract.  Finally, the Court confirmed that continuation of employment could not, of itself, amount to consideration where there was no indication that it was conditional on the acceptance of the restrictive covenants.

This is a reminder that employers must proceed very carefully when seeking to impose new covenants during the course of employment.