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

The Court of Appeal considered whether employees who refused to sign proposed post-employment restrictive covenants could be fairly dismissed. The court held that an employer's reason based on refusal to accept proposed covenants can, in principle, fall within the category of potentially fair reasons under section 98(1) of the Employment Rights Act 1996, so the inquiry must proceed to the statutory fairness assessment under section 98(4). The Employment Tribunal's primary conclusion that refusal could never amount to a s.98(1) reason was therefore wrong. However, the tribunal's alternative and independent finding that the dismissals were unfair for procedural reasons was upheld: the employer had presented widely drawn covenants abruptly, given inadequate opportunity to consider them, failed to warn that dismissal might follow non-acceptance, and conducted negotiations in an aggressive and intimidating manner. Those procedural defects made the dismissals unfair.

Background and parties: The appellant employer, Willow Oak Developments Ltd (trading as Windsor Recruitment), operated branches placing healthcare staff. Respondent employees were consultants based at the Leeds branch. The employer proposed detailed post-employment restrictive covenants after experiencing staff departures and loss of business to a rival. The Employment Tribunal found the proposed covenants to be unreasonable and held dismissals for refusal to sign them to be unfair. The Employment Appeal Tribunal reversed the ET on the question whether refusal could be a reason within section 98(1) but upheld the ET's alternative conclusion that the dismissals were unfair under section 98(4). The employer appealed to the Court of Appeal.

Nature of claim / relief sought: The respondents claimed unfair dismissal arising from summary dismissal for refusing to sign new restrictive covenants. The remedies sought are not detailed in the judgment.

Issues framed:

• Whether an employee's refusal to accept proposed restrictive covenants can amount to a "reason of a kind such as to justify dismissal" under section 98(1) of the Employment Rights Act 1996; and
• If so, whether the employer acted reasonably in treating that refusal as a sufficient reason for dismissal under section 98(4), taking into account the terms of the covenants and the procedure adopted.

Court's reasoning: The court held that section 98(1) asks whether the employer's reason falls within a legal category of potentially fair reasons, so an employee's refusal to accept proposed covenants can, in principle, constitute such a reason. Whether dismissal is fair depends on the section 98(4) assessment of reasonableness, including the employer's procedure and the substantive terms. The tribunal's view that an unreasonable covenant could never form the basis of a s.98(1) reason was therefore wrong. The court nonetheless upheld the ET's independent finding that the employer's conduct was procedurally unfair: the covenants were drafted very widely, were delivered abruptly (staff given thirty minutes initially), staff were not warned dismissal might result, negotiations were conducted aggressively, and the subsequent process did not cure the earlier procedural defect. The Court of Appeal therefore dismissed the employer's appeal.

Subsidiary findings and wider context: The court emphasised the two-stage approach (whether the reason fits s.98(1) and then whether dismissal was fair under s.98(4)), noted the unusual public-policy treatment of restrictive covenants in contract law but treated enforceability as one factor in the fairness assessment, and observed that the remedy of reinstatement or re-hearing was unnecessary because a remission would produce the same result on the facts found by the ET.

The appeal was dismissed. The Court of Appeal held that (1) refusal to accept proposed restrictive covenants can in principle be a "reason of a kind such as to justify dismissal" under section 98(1) of the Employment Rights Act 1996, so the inquiry requires the statutory fairness assessment under section 98(4); (2) on the facts the Employment Tribunal’s independent finding that the dismissals were procedurally unfair was correct because the covenants had been presented abruptly, without adequate warning that dismissal might follow, and in an aggressive manner; therefore the dismissals were unfair and the employer's appeal failed.

Appeal to the Court of Appeal from the Employment Appeal Tribunal (Burton P presiding), UKEAT/0339/05/DA. The Employment Appeal Tribunal had reversed the Employment Tribunal on the section 98(1) point but upheld the Employment Tribunal's alternative finding of unfairness under section 98(4). The Court of Appeal dismissed the employer's appeal (this judgment: [2006] EWCA Civ 660).