Analysis of Employment Contract - Essay Example

Employment Contract In terms of his employment with Balmoral, Ali already has an employment contract in place which specifies the terms of employment. He was however, being asked to sign a new contract without being provided adequate time to consider all the legal ramifications of what he was signing. The employer according him just a half hour to read through the contract before mandatorily singing it or losing his commission, could be construed as unreasonable behavior. Furthermore, he was not allowed to bring his friend with him to the disciplinary hearing, to provide some assistance and to help him represent his interests adequately. This could also be held to be unreasonable behavior. A general rule has been set out in the case of General Billposting Co Ltd v Atkinson1 it was held that there may be instances where an employer has behaved so badly towards an employee that the employee can treat his employment contract as if it is at an end. When this is the case, the employer may not be able to impose any post termination restrictive covenant on the employee, because the contract has been ended as a result of the employer’s own fault, hence he will not have the right to demand that the employee adhere to any conditions post employment. Thus, on this basis, Ali has grounds to contest the sudden change in the contract that has been made by Balmoral. It must also be noted that there may have been certain terms implied in Ali’s original contract, such as the duty of an employee not to work for competitors, even during off duty hours, as also stated in the cases of Hivac Ltd v Park Royal Scientific Instruments Ltd2and Provident Financial Group plc v Hayward.3 Ali’s original contract with Balmoral would have already included the implicit restriction on working for competitors, therefore the grounds for Balmoral instituting a new contract may itself be subject to dispute. In general, once an employment contract has been entered into with an employee, an employer may not change the terms without first obtaining the consent of the employee.4 Unless the original contract Ali had with Balmoral allows the flexibility of changing contractual terms, Balmoral will be required to follow the correct procedure and offer the terms to Ali, who is at liberty to accept or reject them. Balmoral’s dismissal of Ali on the grounds of refusal to accept new terms may give rise to grounds for a breach of contract. Even assuming that the new contract was deemed necessary after the recent incidences of poaching staff, it will be difficult for Balmoral to justify its arbitrary conduct in requiring Ali to sign at such short notice and its dismissal on that basis, as evidenced through its letter. It is this unreasonable conduct that could be the subject of dispute and raise the issue of whether the dismissal was fair, but changing. (2) The Courts have shown a willingness to uphold restrictive covenants which are part of an agreement for sale of a business5 but this is not the case with restrictive covenants in employment contracts, which are scrutinized closely by the Courts. As Lewis points out, the restraint of trade doctrine, wherein a person has a right to pursue his occupation freely, imposes limitations on what may or may not be acceptable within the scope of a restrictive covenant.6 In accordance with Lord McNaughton’s speech in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd7 the basic rule is that any kind of restraint of trade is void, hence an employer cannot protect himself against competition by imposing a restrictive covenant on an employee, especially after his employment has ceased. The Courts will examine the terms of the restrictive covenant to assess whether the circumstances justify such restraints being placed on the employee. Hence the successful drafting of a restrictive covenant may require a “good deal of legal know-how.”8 Some rules have been established by the Courts on restrictive covenants. One of these is that it should not be too wide in scope, so that the trade restrained must be only to similar businesses, which compete seriously with it. For example, in the case of Way v Bishop9a solicitor could not be restricted in accepting employment as a clerk to another solicitor. Also, a restrictive covenant can only operate within a particular geographical area where the Company functions and cannot be imposed on a very wide ranging basis10. The restrictive covenant can also operate only for a specified time period; in the case of Allied Dunbar (Frank Weisinger) Ltd v Weisinger11 a twenty four month period for a restrictive covenant was upheld. The absence of a time limit in a restrictive covenant will not necessarily deem it invalid, provided it is otherwise reasonable12. On a general principle, the restraint of trade as signified in a restrictive covenant may not be acceptable. However, Balmoral may be able to demonstrate to the Court that it is justified in imposing a restrictive covenant, due to the damage that is being done to its business interests.13 Moreover, the imposition of the restrictive covenant per se may not be a subject that Ali can legally contest, because it was issued during the period of his employment, when it is valid for an employer to require him not to engage in anti competitive practices involving other companies. As pointed out by Lewis14 former employees are free to solicit alternative employment as they wish, after they have left their employment, subject to certain reasonable restrictions in the interest of protecting the former employer’s interests. In the case of Bennet v Bennet15 Lord Denning referred to the ‘blue pencil’ rule, wherein if a contract is held to be in restraint of trade but it has been drafted in such a manner that severance arrangements have also been specified under the contract, then it is only the provisions pertaining to the restrictive covenant which may be held void, not the entire agreement. While this may be applied in limited cases, a restrictive covenant which is deemed reasonable in terms of the restrictions it imposes will be enforceable by the courts. Since Ali is an employee of Balmoral, it may not be deemed unreasonable to impose a restrictive covenant in the first place. Applying the rules established by the courts on restrictive covenants, it may be noted that the restriction in Ali’s contract is not too wide. It only restricts him from recruiting employees or former employees of Balmoral for any other company he works for. Furthermore, the covenant also specifies a specific time period of 12 months, which may not be deemed unreasonable. From this perspective, the restrictive covenant may be enforceable, especially because Ali is an employee of the Company. The Covenant does not specify a geographical area within which it will operate, however this may not necessarily be a bar because Balmoral is involved in the software business which is done online and covers the global geographic area. Balmoral’s restrictive covenant may be enforceable especially if the Company can demonstrate adequate justification for imposing it, such as detailing the losses it has suffered. It must be noted however that since Ali has not yet signed the restrictive covenant however, he may not actually be bound by its provisions, although it is enforceable as currently framed. (3) Ali would have had a good case to press for unfair dismissal, on the grounds of unreasonable conduct on the part of the employer in relation to the circumstances surrounding his dismissal. In the first place, his original contract was changed and he was pressured to accept them at short notice or be dismissed through the disciplinary hearing that was held. In assessing whether Ali can file suit for unfair dismissal, two aspects must be considered (a) the reason for the dismissal and (b) the manner of the dismissal. The reason given for Ali’s dismissal is his refusal to sign the new contract. In this context, the case of Courtaulds Northern Spinning Ltd v Gibson16 is relevant. The employee in this case was suddenly asked to work at a different location and the employer insisted on the move, so the employee resigned and claimed constructive dismissal. The Court held that there was no mobility clause in the original agreement, as a result the unreasonable nature of the employer’s actions justified a finding of unfair dismissal. In the case of Gunton v London Borough of Richmond17 it was held that in circumstances where a disciplinary procedure forms a part of a contract, an employer will be in breach of the contract if he dismisses the employee without going through the necessary procedure. The Employment Act of 199618 also requires a statutory dismissal procedure to be followed which allows for the provision of adequate time to include the employee’s right to appeal a decision to dismiss and if the procedures are not followed the employer can be held liable for unfair dismissal19. While there are grounds for Ali to file a suit for unfair dismissal with the Employment Tribunal, it may not succeed, because under the Employment Act of 2002, Ali is required to first raise his grievance internally with Balmoral itself. Under the new regulations, if an employee does not follow the procedures, he may not be able to file a Tribunal claim “or compensation may be reduced in an otherwise successful case.”20 Since Ali himself has delayed the appeal and has not attended it before the expiry of the time period, this is likely to compromise his case for unfair dismissal. Under the modified procedures for dismissal, Ali is required to inform Balmoral if he wishes to appeal and take all reasonable steps to attend the meeting, which in his case was also rescheduled. On these grounds, it appears unlikely that he can successfully contest the dismissal. Ali may be able to seek interim relief by way of an injunction against wrongful dismissal, by demonstrating that he has not accepted the employer’s dismissal and repudiation of his employment contract. Since Ali was not allowed time to consider what he was signing and was dismissed on the basis of his refusal to sign a new contract, this may constitute grounds for wrongful dismissal. In the case of Dietman v Brent LBC21 it was held that where a wrongful dismissal has occurred in response to an employee’s refusal to accept the employer’s repudiation of contract, an injunction can be granted against such dismissal to prevent it from taking effect, but only up to the point until the contractual disciplinary procedure has been followed. In Ali’s case however, it may be held that the period for the contractual disciplinary procedure has expired. It must be concluded on this basis that Ali may not be able to bring his claim, since he has exceeded the time limit for filing an appeal. Moreover, the Tribunal may find that he has not attempted to resolve the issue with his employer first. In practice however, the Employment Act of 2002 (Dispute Resolution) Regulations have not worked well, because they have not added to fairness in such decisions. The weakness of the dispute resolution procedures have been pointed out by Gibbons22, and may soon be replaced with procedures that emphasize mediation and conciliation. However, under the current rules in existence, the delay in filing may bar Ali’s appeal to the Tribunal, especially since he has not attended the appeal proceedings with his employer. 4. In the case of Powell v Brent London Borough Council23Ralph Gibson, LJ stated that the Court “will not by injunction require an employer to let a servant continue in his employment, when the employer has sought to terminate that employment…..unless it is clear on the evidence that ….there exists sufficient confidence on the part of the employer in the servant’s ability and other necessary attributes….”24 In Ali’s case, Balmoral may be able to use this precedent to illustrate why it should be supported in its decision to dismiss Ali. One of the requirements in unfair dismissal cases is that Employment Tribunals must consider whether the applicable steps for dismissal laid out under Section 98A of the ERA 1996 have been followed and this must be done even in those cases, where the parties themselves do not bring up the issue25. In the case of Balmoral, it has followed the three step procedure by providing the notice of dismissal in writing to Ali and setting up a meeting time for Ali to appeal the decision, even rescheduling it to allow him to attend. In the case of Ali, there has been a disciplinary hearing and he has also been asked to attend the appeal hearing. When Ali did not attend the appeal hearing, it was rescheduled but Ali still did not appear and the time for submission of his claim also ran out. On this basis, Balmoral may argue that applying the rule established in the case of Gunton26 it is not in breach of contract because it has gone through the necessary procedures called for in a disciplinary action leading to dismissal. In terms of supporting its decision to dismiss, it may be able to rely on the vital importance of the restrictive covenant in view of the dangers posed to its business by rival companies poaching staff. It can put forward the argument that it allowed Ali the opportunity to agree to those terms and continue with the Company, but Ali chose to refuse to sign the agreement. It may be able to demonstrate that Ali’s failure to sign the new agreement amounted to a loss of confidence of Balmoral in its employee. IN view of the dangers posed by intense competition and poaching of employees, Ali’s refusal to sign when other employees may also have been presented the same new contract and signed, would have placed a doubt upon his integrity and intent to be loyal to his employer. Therefore, since his actions amounted to Balmoral losing its confidence in him, it cannot be forced to retain the employee, Moreover, this can also be supplemented with the argument that it attempted to be fair to Ali and allowed him time to appeal, but Ali chose not to attend the meetings, which in itself is an indication of his lack of integrity and good intention towards the Company. On these grounds, Balmoral can support its decision to dismiss and lay the onus for the dismissal at Ali’s door. Bibliography * Can my employer change the terms of my contract? ; April 23, 2008 * Collins, Hugh, Ewing, Keith D and McColgan, Aileen, 2005. “Labor Law: text and Materials”, Hart Publishing at p 530 * Disadvantages: Employees. ; April 23, 2008 * Gibbons, Michael, 2007. “A review of employment dispute resolution in Great briatin” March 2007. * Lewis, Jonathan M, 1989. “City comment: Who will restrict the restrictive covenants?” Law Society Gazette, 86(32), June 21, 1989. Cases cited: * Allied Dunbar (Frank Weisinger) Ltd v Weisinger [1988] IRLR 60 * Bennett v Bennett (1952) 1KB 249 * Commercial Plastics Ltd v Vincent (1965) 1QB 623 * Courtaulds Northern Spinning Ltd v Gibson (1987) ICR 329 * Dietman v Brent LBC (1987) ICR 7376 * Fitch v Dews (1921) 2 AC 158 HL * General Billposting Co Ltd v Atkinson (1909) AC 8 HL * Gunton v London Borough of Richmond (980) IRLR 321 * Hivac Ltd v Park Royal Scientific Instruments Ltd(1946) All ER 350 * Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd [1894] AC 535 * Powell v Brent London Borough Council (1988) ICR 176 * Provident Financial Group plc v Hayward.(1989) ICR 60 CA * Venniri v Autodex Ltd UK EAT /0436/ 07 * Way v Bishop (1928) Ch 647 Legislation cited: * Employment Act of 1996 * Employment Act of 2002 (Dispute Resolution) Regulations Read More