It had been generally accepted that an employer who wished to
introduce post-termination restrictions after an employee has
commenced employment would have to provide a tangible benefit (e.g.
a pay rise). This principle, however, has been cast into doubt
after two High Court decisions in June 2016 which appear to go
against the grain of previous case law.
Pro Cam might have been seen as an anomaly; however the decision
in Decorus Ltd v Penfold & anr suggests a trend towards a
relaxation of the principles governing whether an agreement has
been reached. This judgment appears to hold that benefits provided
prior to the introduction of new post-termination restrictions can
be treated as being in exchange for the employee signing up to the
new restrictions, thus making enforcement possible. This possible
trend would be welcomed by employers seeking to protect their
business by contractual restrictions, particularly where there is
doubt around the process leading up to the agreement of the
restrictions in question.
In Decorus, an employee (Mr Penfold) left his employer (Decorus)
in order to set up in competition on his own, in breach of his
Having begun work for Decorus in 2012, Mr Penfold was later
given a new contract containing new restrictions, which he signed
at the end of May 2013. More than a month earlier, Mr Penfold had
been given a pay rise following an appraisal. This was expressed by
the employer to be part of a three phase process, encompassing an
appraisal, possible actions after the appraisal, and the issuing of
an updated contract of employment. Mr Penfold argued that since the
pay rise had been awarded before the new contract was signed, this
could not be treated as his side of the exchange needed for an
The court found that when taken together, the appraisal, pay
rise, and continued employment did amount to valid consideration
for the 2013 contract. They were always expressed to be part of a
three phase process, beginning with the appraisal, of which the new
contract and the salary increase were both a part. Surprisingly, it
decided that it did not matter in which order the signing and the
pay rise came, as they were both part of this process. The 2013
contract therefore applied to Mr Penfold, and the post-termination
restrictions were enforceable.
Mr Penfold had repeatedly breached his duty of loyalty to
Decorus, having actively made preparations to compete with them
whilst still in their employment. This could be seen as a case
where the court has stretched its interpretation of the law in
order to achieve a 'just' result.
Whilst the decision in Penfold could prove advantageous to
employers in a similar position seeking to enforce post-termination
restrictions, it would be premature to rely on its principles
unless and until they receive further judicial approval. The
prudent approach for employers remains to introduce
post-termination restrictions from the beginning of the employment
relationship, when providing the employee with the job itself
unambiguously qualifies as the tangible benefit given from the
employer's side. Restrictions should be updated during the
course of employment as required (eg to address an employee's
exposure to a different part of the business).
When introducing or amending restrictions during the employment
relationship, this is best done on promotion or with a pay rise,
whilst explicitly setting out in writing that the promotion or pay
rise is conditional on the employee agreeing to such
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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