New law: Employer taking on a new employee in breach of a restriction imposed on the employee by former employer did not ‘induce a breach of contract’

Employers taking on an employee should check whether the employee is subject to a restriction on working for them imposed by a previous employer, and consider the risks of being found to have induced the employee to breach those restrictions if they offer a job, following a recent legal ruling.

An ex-employee of a business took a job with a competitor. His contract of employment with the old employer contained restrictions on him working for rivals. The old employer took the new employer to court, alleging that, by offering him the job, it had wrongfully induced its former employee to breach his contract.

To succeed, the old employer had to show (among other things) that the new employer knew that the act it had induced the employee to carry out – to take the job it offered him - was a breach of the employee’s contract, or was indifferent whether it was.

In this case, the new employer had taken legal advice on the restrictions and been told that it was more likely than not that they were unenforceable. It argued that this meant it was not liable for inducing a breach of contract as it did not have the requisite knowledge that it had induced a breach of contract, and had not been indifferent as to whether it had.

In a separate legal ruling, a court found that the restrictions were enforceable after all. The old employer argued that the new employer knew there was a risk that the restrictions would turn out to be enforceable, and the fact that the risk had become a reality should be enough to make the new employer liable.

The Court of Appeal disagreed. It found that the fact the new employer took legal advice meant it was not indifferent, and did not turn a blind eye, to the restrictions. The court also found that the new employer honestly believed that its acts did not amount to inducing a breach of contract. That honest belief meant it was not liable for inducing the employee to breach his contract.

Significantly, it said it would have reached the same result if the new employer’s honest belief had been due to its own ignorance, rather than because it had received incorrect advice.

Operative date

• Now

Recommendation

• Employers taking on an employee should check whether the employee is subject to a restriction on working for them imposed by a previous employer, and consider the risks of being found to have induced the employee to breach those restrictions if they offer a job.

Case ref: Allen t/a David Allen Chartered Accountants v Dodd & Co Ltd [2020] EWCA Civ 258