Consideration must be paid to be able to enforce restrictive covenants inserted as part of a contract variation

In the recent case of Re-use Collections Limited v Sendall & May Glass Recycling Limited the claimant sought to enforce a number of restrictions, including a 6 month non-solicitation and non-dealing clause and a 12 month non-competition clause against their former employee, Mr Sendall who left Re-use Collections Limited ("Reuse") to work for a competing business owned and operated by his children.

Mr Sendall worked for Reuse whilst it was a family run business from 1980 becoming a director of the business. In 2000 the company left family ownership but Mr Sendall remained as an employee.

Up until 22 February 2014 Mr Sendall had no written contract, having only been supplied with a written statement of particulars. In October 2012 Mr Sendall was provided with a draft written contract of employment which contained a number of restrictions. Mr Sendall eventually signed this contract on 22 February 2013.

On 27 March 2013 Mr Sendall gave three months' notice of resignation as he was required to do under his new written contract of employment. Following notification of his resignation it came to Reuse's light that Mr Sendall had been involved in starting a competing business (May Glass Recycling Limited) and intended to work for this company following the end of his employment. Reuse subsequently issued a claim seeking an injunction to hold Mr Sendall to the restrictions in his contract.

It is common ground that to enforce restrictive covenants consideration must be given. Reuse argued that consideration had been paid as the restrictions were introduced as part of a package under which benefits, including a pay rise, were conferred on Mr Sendall. Reuse also claimed that consideration could be found in Mr Sendall's continued employment in the months after the contract of employment was introduced.

Through the course of the hearing it became clear that the new benefits introduced were largely already being enjoyed by Mr Sendall prior to the new contract and that although Mr Sendall was given a pay rise in January 2013 this was not related to the new contract; the contract stipulated his previous salary level. Further, all employees were given a pay rise at the same time, including junior employees that were not being asked to sign new contracts including new restrictions.

The court also refused to accept that Mr Sendall's continued employment constituted consideration. Mr Sendall was a long serving employee and mere continued employment was not sufficient in return for acceptance of new, substantial, contractual restrictions. Further, the court found that there was no link between his continued employment and the restrictions; Mr Sendall was not given the draft contract on the basis, either explicitly or implicitly, that a refusal to sign would/might lead to dismissal.

Without any consideration the court held that the restrictions were not enforceable.

If you are seeking to amend your employee's contracts to include new or extend existing restrictive covenants you should heed this case as a warning.

It is important to make sure that any benefits or pay increases that are given to your employees in return for variations to their contracts to include restrictive covenants are given either conditionally on their acceptance of the variation or at the very least in the general sense linked with the introduction of the new contract. If you cannot refer to specific consideration for the contract variation you may find yourself exposed and without the protection you thought you had established.