Rock Refrigeration Ltd v Jones

A post-employment restrictive covenant is not void merely because it is expressed to operate after termination of employment “howsoever” caused. Where an employee accepts the employer’s repudiatory breach, the employee is discharged from further contractual performance under the principle in General Billposting Company v Atkinson [1909] AC 118. A covenant cannot therefore be enforced in that event, whatever its wording purports to achieve.

The restraint of trade doctrine concerns a covenant which would otherwise be enforceable. It does not invalidate the covenant as a whole because it purports to impose an obligation which the law will in any event not enforce. D v M was wrongly decided on this point.

Rock Refrigeration Ltd employed Mr Jones under a new contract containing confidentiality and customer non-solicitation covenants. The covenants were expressed to apply during employment and for 12 months after its termination “howsoever occasioned”. Mr Jones resigned to join a competitor.

Rock sought damages and final injunctive relief. At an early trial, Sir Michael Davies held the covenants unenforceable because they purported to apply following termination howsoever caused, following D v M [1996] IRLR 192. Rock appealed. It was accepted that Rock had legitimate interests capable of protection by covenants of the general kind in issue.

The central issue was whether wording extending the covenants to all forms of termination necessarily made them unreasonable restraints of trade.

Decision

1. The Court of Appeal unanimously allowed Rock’s appeal. Simon Brown LJ gave the leading judgment. Morritt LJ agreed with it. Phillips LJ agreed that the appeal should be allowed, while expressing reservations about one part of the underlying contractual analysis.

2. Simon Brown LJ held that the restraint of trade doctrine applies only to a covenant which would otherwise be enforceable. An employee who accepts an employer’s repudiatory breach is discharged from further obligations under the contract, including otherwise valid restrictive covenants, under General Billposting Company v Atkinson [1909] AC 118. A covenant purporting to survive that event is ineffective to that extent; it is not thereby an unreasonable restraint of trade.

3. Accordingly, wording such as “howsoever occasioned”, or even wording referring to lawful and unlawful termination, does not invalidate the covenant as a whole. The contrary premise underlying the third, hypothetical reason in Briggs v Oates [1990] ICR 473, and adopted in D v M [1996] IRLR 192, was wrong. The Court held that D v M had been wrongly decided.

4. The respondents’ additional objections failed. The extension of “Company” to associated companies in clause 11.7 could be severed. The blue-pencil test was met and severance did not substantially alter the meaning of the remaining covenants. “Person” in clause 11.6 bore its ordinary legal meaning and was not confined to individuals.

5. Phillips LJ considered that later contract law might cast doubt on the universal discharge of post-termination negative covenants after repudiation. He treated that issue as unnecessary to decide. Even if the covenants could survive an employer’s repudiation, their inclusion in this contract would not on the facts make them unreasonable.

The appeal was allowed with costs here and below. The respondents gave fresh undertakings to comply with clauses 11.2, subject to the stated omission, and 11.6, both without clause 11.7.

• Court of Appeal (Civil Division) — allowed Rock’s appeal and reversed the conclusion that the restrictive covenants were void as unreasonable restraints of trade: [1997] ICR 938 .
• High Court — Sir Michael Davies held the covenants unenforceable, following D v M. The citation of that decision is not stated in the judgment.