Sunrise Brokers LLP v Rodgers

An employer seeking to restrain an employee from working for a competitor during a subsisting employment contract need not invariably undertake to pay the employee. The court must instead assess realistically whether the injunction would compel performance of the employee’s positive obligations. Financial hardship, loss of professional skills and the restraint’s duration are relevant, but hardship alone is insufficient.

Pre-termination obligations of fidelity and post-termination restraints are legally distinct and should be assessed separately. A valid post-termination covenant may be enforced for only part of its term where subsequent circumstances make full enforcement unreasonable. The employee’s failure to perform an orderly handover may inform that discretionary assessment.

A derivatives broker left work without giving the notice required by his fixed-term employment contract and agreed to join a competitor. His employer declined to accept the repudiation, required him to return and withheld remuneration because he was neither working nor willing to work.

A Deputy High Court Judge declared that the employment continued until 16 October 2014. He restrained the broker from working for a competitor during that period without requiring the employer to pay him. He also enforced post-termination covenants until 27 January 2015, producing an overall restraint of approximately ten months from his last client contact.

The broker appealed against the absence of a remuneration undertaking, the duration of the restraint and the judge’s approach to injunctive relief. The finding that the employment contract remained in force was not challenged.

1. Appeal dismissed. An employer seeking an injunction restraining an employee from working for a competitor during a subsisting contract is not invariably required to undertake to pay remuneration beyond its contractual obligations. The practice of giving such an undertaking responds to the rule against indirectly compelling specific performance of a contract for personal services. It does not rest on an independent principle of mutuality or quid pro quo.

2. The controlling question is whether the injunction would, in the circumstances, effectively compel the employee to return to work for the employer. The court must assess realistically the probable psychological, material and, where relevant, physical pressures upon the employee. Financial hardship short of destitution may suffice, and the duration of the restraint is important. Mere hardship or an inability to earn in the employee’s preferred occupation does not itself establish compulsion.

3. The evidence did not require a finding of compulsion. The broker had provided little information about his financial position or any risk that his skills would atrophy. His new employer was prepared to wait, his agreed start date was later than the end of the notice period, and the restraint during employment was short. The employer’s motive for withholding pay was immaterial because the broker had no contractual right to payment while unwilling to work.

4. Obligations during employment and post-termination restraints must be considered separately. The former arise from the duty of fidelity and are readily enforceable subject to the rule against compelled personal service. The latter are prima facie unlawful unless justified under restraint-of-trade principles.

5. The judge could consider the broker’s failure to undertake an orderly handover when deciding whether discretionary relief should enforce the post-termination covenant. A court may also enforce a valid restrictive covenant for only part of its term where later events make enforcement for the full period unreasonable. On the particular facts, an overall ten-month restraint was not unreasonable.

6. Damages were not shown to be an adequate remedy. Loss caused by an employee joining a competitor is commonly difficult to identify, prove and quantify. As no developed case on adequacy of damages had been advanced below, the judge could proceed on the basis that an injunction was appropriate. Referring to whether relief would be oppressive was legitimate and did not show that the judge had treated oppressiveness as the sole criterion.

1. Court of Appeal (Civil Division): The broker’s appeal was dismissed. The injunctions and declaration made below remained effective.
2. High Court, Queen’s Bench Division: Mr Richard Salter QC, sitting as a Deputy High Court Judge, declared that the employment continued until 16 October 2014. He restrained competitive activity during employment and enforced the post-termination covenants until 27 January 2015. No neutral citation is stated in the judgment.