Willow Oak Developments Ltd. (t/a Windsor Recruitment) v Silverwood & Ors

A refusal to accept new contractual covenants can fall within the class of reason capable in law of justifying dismissal under the Employment Rights Act 1996, even where the proposed covenants may be unreasonable or unenforceable. Their scope and enforceability are matters for the assessment of fairness under section 98(4), not an automatic bar at section 98(1). That assessment includes all the circumstances, the employer’s business reasons, the effect on employees and the procedure used. A dismissal may be procedurally unfair where employees are given no proper opportunity to understand complex terms, are subjected to an intimidatory process, or are not warned that refusal may lead to dismissal. A tribunal may reach that conclusion from the procedure alone.

Employees of a healthcare recruitment business were dismissed after refusing to sign new post-employment restrictive covenants introduced to protect the business from competitor recruitment. The Employment Tribunal held that the covenants were so unreasonable that refusal did not provide a potentially fair reason under section 98(1)(b), and alternatively that the dismissals were unfair under section 98(4) because of the way the proposals and dismissals were handled.

On appeal, the Employment Appeal Tribunal, under UKEAT/0339/05/DA, rejected the first conclusion, but upheld the alternative finding and declined remission. The employer appealed on all three points. The central issues were whether covenant reasonableness was a threshold question under section 98(1)(b), whether the procedural finding was independent and sustainable under section 98(4), and whether remission was required.

1. Appeal dismissed. Buxton LJ gave the leading judgment. Neuberger LJ and Nourse LJ agreed, making the decision unanimous.
2. Section 98(1). The initial question is whether the employer’s reason falls within a category capable in law of justifying dismissal, rather than whether the employer has already shown that dismissal was fair. An employee’s refusal to accept covenants proposed to protect legitimate business interests can fall within that category. The court rejected the approach in Forshaw v Archcraft [2006] ICR 70. The possible unenforceability of a restrictive covenant is only one factor in assessing the reasonableness of the negotiation and dismissal process.
3. Section 98(4). Fairness must be assessed in all the circumstances. In an ordinary contractual-variation case, the tribunal may balance the employer’s business reasons against the advantages and disadvantages to employees, together with the procedure used. This was not, however, a case in which the tribunal needed to resolve the covenant’s reasonableness, because the procedure independently made the dismissals unfair. The court distinguished Scott v Richardson [EATS/0074/04, 26 April 2005, unreported] on that basis.
4. The Employment Tribunal was entitled to rely on the short period initially allowed to consider complex covenants, the absence of any warning that refusal might lead to dismissal, and the hostile and intimidating conduct of the employer. The later period for consideration did not cure the defects, since the earlier conduct set the tone and the dismissal decision was effectively final. The absence of a warning alone justified the procedural finding.
5. Remission. For completeness, the court considered the EAT’s conclusion that remission could be withheld only where the result was clear and that the EAT could not add its own findings, referring to O’Kelly v Trust House Forte [1984] QB 90. The discussion was unnecessary to the result. The covenants were at least arguably unreasonable, and the employer’s conduct made the same outcome inevitable. The possible reading down discussed in Littlewoods v Harris [1977] 1 WLR 1472 could not make the covenant’s reasonableness unarguable.

• Court of Appeal (Civil Division): In [2006] EWCA Civ 660, dismissed the employer’s appeal.
• Employment Appeal Tribunal: Under UKEAT/0339/05/DA, reversed the Employment Tribunal’s conclusion under section 98(1)(b), but upheld the alternative finding that the dismissals were unfair under section 98(4) and held that remission was unnecessary.
• Employment Tribunal: Held that the proposed covenants were so unreasonable that refusal to sign could not provide a potentially fair reason for dismissal, and alternatively that the dismissal procedure was unfair.