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An employee may still be bound by post termination restrictive covenants even where there have been prior breaches of contract

The recent case of Sunrise Brokers LLP v Michael William Rodgers [2014] has established that an employee may still be held to their post termination restrictive covenants even where the employer has ceased paying them for their notice period.

It has long been understood that where a contract has been breached by the employer the employee will no longer be bound by the terms of the employment and is therefore free to work for competitors or solicit customers without being in breach of restrictive covenants. However this recent decision of the High Court has distinguished situations where the employer can keep the contract alive and continue to enforce restrictive covenants.

The employee in the case, Mr Rodgers, joined Sunrise Brokers LLP ("Sunrise") in 2009 and transferred to a new role in the company in October 2011. Under the new contract Mr Rodgers was required to work a minimum term of 3 years, after which he could resign from his employment on 12 months' notice.

However prior to the expiry of the 3 year minimum term Mr Rodgers ceased turning up for work and attempted to resign without notice. Sunrise refused to accept Mr Rodgers' resignation and ceased to pay him.

Injunction proceedings were issued to prevent Mr Rodgers from breaching the restrictive covenants contained in his contract. Mr Rodgers argued that his contract ended when Sunrise failed to pay his salary and thus was no longer bound by any post termination restrictions. It was his view that if Sunrise did not accept his breach of contract and therefore kept the contract alive then Sunrise were obligated to pay his salary. However, the High Court did not agree with Mr Rodgers and instead gave a declaration in favour of Sunrise.

The High Court held that Mr Rodgers' resignation was a breach of contract and Sunrise was therefore free to decide whether to accept it or not. As Sunrise made it clear that it was not accepted the contract remained in force. This decision was not new. However, the court went further and held that Sunrise had no automatic obligation to make a payment to Mr Rodgers if he failed to come to work; Sunrise's obligation to make payment and Mr Rodgers' obligation to attend work were mutually exclusive. Accordingly the Court decided that Mr Rodgers was still an employee and would continue to be so until the end of the notice period previously agreed to between the parties. An injunction was given in favour of Sunrise holding Mr Rodgers to the restrictive covenants in his employment contract.

This case sets a good precedent for employers; setting down clearly that an employer is within its rights to cease paying a salary where an employee is not willing to work, without fear of breaching the contract and being unable to enforce post termination restrictions. The case also serves as a useful reminder that employers have the option to accept renunciation by an employee or affirm the contract and keep it alive.

However it should also be noted that the case could easily have turned in the employee's favour had the facts been different. If Sunrise's HR department had sent Mr Rodgers a P45 or had Sunrise given some other indication that the resignation may have been accepted Sunrise may well have lost the injunction proceedings and been found to have been in breach of contract when they ceased paying Mr Rodgers. Employers should be careful when dealing with employees during notice periods and ensure that it is clear whether a renunciation is accepted or not.

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