The managing director of a Group of companies agreed a covenant in restraint of trade in his service contract. For one year after ceasing to be so employed he would not do business ‘With any firm or company who has at any time during the one year immediately preceding done business with the Group’. The Group was then taken over by the Plaintiffs and the managing director was dismissed. There was a Regulation 5(1) transfer. The Plaintiffs sought to enforce the restrictive covenant against the managing director. What did the contract mean in the context of the transfer? Did it bar the erstwhile Group managing director from doing business with people who had done business with the Plaintiffs in the next preceding year (a thing he was not attempting to do) or with those who had done business in that period with the original Group? Turner J, having referred to the words in Regulation 5(1) that the effect was to be as if the contract was made with the transferee Plaintiff, held the former to be the case. As that type of breach of covenant was not threatened, Turner J granted no injunction against the managing director.
Held: Dillon LJ dealt with the question of the transfer generally. Speaking of Turner J.’s construction he said:- ‘The difficulty about that approach to my mind is that it turns the obligation on the employee . . into a quite different and possibly much wider obligation than the obligation which bound him before the transfer, that is to say an obligation not to do business etc. with the person who had done business in the relevant year with the Plaintiffs and not the company. Such an obligation was not remotely in contemplation when the services agreement was entered into and I can see no reason why the regulation should have sought to change the burden on the employee. As Lord Templeman pointed out, the object was that the benefit and burden should devolve on the new employer. That would mean in the present context that the transferee should be able to enforce the same restriction. The more reasonable construction is in my judgment that the words ‘the transfer shall have effect . . ‘are to be read as referring to the transferee as the owner of the undertaking transferred or in respect of the undertaking transferred. The effect therefore is that [the relevant clause] can be enforced by the Plaintiffs if Mr Hollande within the year after 27th April 1992 does business with persons who in the previous year had done business with the undertaking transferred, of which the Plaintiffs are deemed as a result of the transfer retrospectively to have been the owner. The Plaintiffs are thus given locus standi to enforce the restriction’.
Judges:
Dillon LJ
Citations:
[1993] IRLR 169
Jurisdiction:
England and Wales
Cited by:
Cited – Tapere v South London and Maudsley NHS Trust EAT 19-Aug-2009
EAT CONTRACT OF EMPLOYMENT
Construction of term
The Employment Tribunal erred in construing the terms and conditions of employment as permitting the employer to transfer the employee to another . .
Lists of cited by and citing cases may be incomplete.
Employment
Updated: 07 May 2022; Ref: scu.373265
