"Breaking up is never easy", sang Abba. They were certainly right when it comes to employment relationships. This article addresses issues that arise in the context of resignations of senior employees.
Employees generally resign because either they have found a better opportunity elsewhere or they are unhappy with the existing employer. Whatever the history, an employer should strive to ensure that the atmosphere in which the departure takes place is as positive as possible. If the employee has been a good worker, the business may want to encourage that person to return if the new job does not work out. But, star performer or slacker, you do not want a departing employee to spread the word about shoddy treatment or business practices, to bring legal proceedings or to poach your clients or staff.
Any exit terms must be clear, including those covering notice periods, garden leave and restrictive covenants, and this should be the case from the outset. In practice, this means that the right wording must be included in contracts at the point of recruitment or when updated contracts of employment are issued (eg. at the time of promotion to a senior role). If an employment contract has no garden leave provision, for example, putting an employee on garden leave following resignation could be a fundamental breach of contract. The same applies to unreasonable behaviour by the employer post-resignation. In either case, if an employer acts in breach of contract covenants and confidentiality provisions may be rendered unenforceable, enabling an employee to start up a new business in competition the next day.
In R.A. Rossborough (Insurance Brokers) Ltd. v Boon and Aziz (2001), two senior employees left, following changes to the company pension scheme, and joined a competitor's business. Rossboroughs obtained an interim injunction to prevent solicitation of former clients in breach of restrictive covenants set out in the employees' contracts of employment. The employees applied for the injunction to be lifted, arguing that the company's actions in amending the pension scheme were in breach of contract and that they had been constructively dismissed. Accordingly, they claimed that they were no longer bound by the restrictive covenants and could therefore seek business from whomever they liked.
The case confirmed that restrictive covenants are enforceable in Jersey, if reasonably worded and not intended merely to protect an employer against bona fide competition. An employee is not entitled to take unfair advantage of confidential information obtained during his employment.
Behaviour of the parties following resignation
An employment contract continues during the notice period, whether an employee works until the final day of employment or serves out notice on garden leave. During this period, the normal obligations on both parties continue, including obligations on an employee to behave professionally and comply with reasonable requests of the employer and on the employer to follow appropriate procedures in the event of disagreement.
In 2005 the Guernsey Adjudicator (in what is now the Employment and Discrimination Tribunal) heard the case of Upson v Rossborough Financial Planning Ltd. In August 2004 Upson, who was Deputy Managing Director, gave notice which would expire in December of that year. He then made a formal request to leave in October, which was turned down because his input on an important audit report was required. Upson "downed tools" and refused to co-operate. As a consequence, he was summarily dismissed in November. The Adjucator noted that the relationship between the parties from the point of resignation was "difficult and sometimes emotional" and that the employee "was being deliberately confrontational to drive the company toward a decision for early release." He went on to say, however, that the company should have warned the employee that it viewed his behaviour as grounds for summary dismissal. Its failure to do so, "particularly with an employee with 12 years of previously unblemished service with the company" rendered the dismissal unfair.
Implied duty of mutual trust and confidence
Employers may breathe a sigh of relief to hear that, in the UK at any rate, the courts have decided that there is a line over which employees cannot go. The recent case of RDF Media Group plc v Alan Clements (2007) is striking - not least because of the intemperate e-mail correspondence of the employer, in which Clements was described as "a little weasel".
Clements joined RDF in December 2005. In return for almost £2 million in cash and shares he entered into 3 year restrictive covenants.
In March 2007, days after Clements had confirmed in the press his intention to remain with the company until at least 2008, he entered into talks with a competitor and subsequently resigned. He informed RDF that he intended to take some of his business with him and asked them to cut short his six month notice period - having forgotten about the restrictive covenants. He then briefed the press about his departure, in terms which were positive about the business he was joining and mildly condescending about RDF. RDF responded in a damning interview, which included the words: "If you take the money you do the bloody job…it's just very dishonourable..."
Clements promptly left, claiming constructive dismissal. Had he succeeded, he would not have been bound by the restrictive covenants and could have started with the competitor business immediately.
The judge was critical of the "campaign of vilification" pursued by RDF. Nonetheless, it was held that Clements' behaviour had constituted a fundamental breach of the implied duty of mutual trust and confidence. It was that which had brought the contract to an end. As a result, Clements remained bound by the restrictive covenants and could not rely on the subsequent repudiatory actions of the employer.
The resignation of an employee does not entitle the parties to disregard essential terms of the contract, which may continue to have important effect during the notice period and thereafter. The giving of notice is only the beginning of the end. As Lenny Kravitz put it: "Baby, it ain't over 'til it's over."