Veitch Penny LLP - Exeter | Crediton, Devon

Case

Silverwood v Willow Oak Developments Limited (t/a Windsor Recruitment)

Issues

(1)Contracts of Employment;
(2)Variation;
(3)Restrictive Covenants.

Facts

The employer, a staff recruitment company, had suffered from competitors poaching its staff. In order to remedy this problem, the employer insisted that its employees should accept new contracts which included tighter restrictive covenants. Several employees refused to sign the new contracts and accordingly were dismissed.

They made claims of unfair dismissal. At the hearing, the Tribunal had to consider whether there was a fair reason in law for the dismissals under the category of “some other substantial reason”. It accepted that tighter restrictive covenants were necessary if the employer was to prevent the poaching of its staff. However, the Tribunal then found the suggested covenants to be unreasonably wide and were therefore unenforceable. The Tribunal therefore found that there was not “some other substantial reason” to justify the dismissals and, in any event, it would have found the dismissals to have been procedurally unfair due to the lack of consultation. The decision was appealed to the Employment Appeal Tribunal (EAT).

Decision

The EAT affirmed the Tribunal’s original decision but on different grounds. The dismissals could have been made on the grounds of “some other substantial reason” if the employer could show that the reason for the dismissal (in this case the refusal to sign the new contracts) could amount to “some other substantial reason” (i.e. because they were there to prevent the poaching of staff). This will be a potentially fair reason for dismissal unless the employer acts capriciously or uses it as an excuse to dismiss.

The EAT went on to say that the next step for a Tribunal would be to ascertain whether the dismissal was in fact fair. It is at this point that the reasonableness of insisting on the new terms should be considered and in this context that will include an assessment of whether the covenants were reasonable.

The Tribunal’s conclusion of unfair dismissal was upheld because the EAT considered that the Tribunal would have held the dismissals to be procedurally unfair in any event because of lack of consultation.

Comments

This case confirms that Tribunals must go through three separate steps when considering the fairness of dismissals made for “some other substantial reason” on the ground of business need. The Tribunal must identify the business need and then ascertain whether the term is reasonable and finally check that the employer had followed the proper procedures.

Whilst the employer had good reason for changing its terms, it had failed to implement a reasonable new clause with proper consultation. The dismissal would be unfair on a procedural basis.

Rachel Billen – Associate Solicitor, Commercial Department at Veitch Penny.
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