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Changing terms and conditions – how does ‘consideration’ work?

Where an employer is seeking to change terms and conditions during employment, they must obtain the consent of their employee to the changes. Any agreed variations should also be supported by ‘consideration’ where the variation is to the employee’s detriment.

Generic contractThe case of Re-use Collections Limited v Sendall & May Glass Recycling Ltd (2014) considered whether the restrictive covenants, contained in the new contract of employment that Mr Sendall had signed just before he resigned to join a competitor, were enforceable.

Facts

Mr Sendall commenced employment with Re-use in 1980 and was not issued with a written contract containing any post-termination restrictions. In October 2012 Re-use, under new management, decided that senior employees (like Mr Sendall) should sign a contract of employment which contained specific provisions in relation to confidential information and post-termination restrictions.

Mr Sendall took legal advice on the contract and after discussions with Re-use decided to sign it in February 2013. He resigned in April 2013 after it was discovered that he had been encouraging Re-use’s customers to leave and take their business to May Glass which was operated by his sons and in which he had been involved. Re-use alleged that Mr Sendall had contacted customers after his employment had ceased.

Decision

The High Court refused to enforce the restrictive covenants on the basis that Mr Sendall had not received “some monetary or other benefit” in exchange for agreeing to the restrictive covenants. It was found that Re-use had not made it clear that the salary increase offered to Mr Sendall was conditional upon his acceptance of the contract nor had Re-use offered him any new benefits as the majority were already enjoyed by him. The High Court also rejected the argument by Re-use that his continued employment was a benefit that ought to stand as consideration as there was no threat of dismissal if Mr Sendall did not sign the contract.

Comment

Where employers are seeking to vary the contracts of employment of their employees, they should carefully consider the timing of such requests. In order to ensure the validity and enforceability of restrictions, employers are advised to ask employees to sign new contracts when there are other changes taking place such as promotions, pay rises, or new roles. It is also recommended that correspondence from the employer makes clear that the promotion, pay rise, or new role is subject to the employee signing the new contract.

If changes are needed sooner, then employers should make sure that they allot a specific sum of money in exchange for the employee agreeing to the changes.

Other blogs of interest:

Team raid toolkit

Enforcing restrictive covenants: Lessons learnt from recent case law

Restrictive covenants – latest case emphasises the importance of careful drafting

Is everything in the garden rosy?

Restrictive covenants: how can employers protect themselves in the digital age?

 

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further