England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM High Court, Queens Bench Division
Mr R Salter QC, sitting as a Deputy High Court Judge
Insert Lower Court NC Number Here

		Royal Courts of Justice Strand, London, WC2A 2LL
		23rd October 2014

Lord Justice Underhill :

INTRODUCTION

1. This is an appeal against a decision of Mr Richard Salter QC sitting as a Deputy Judge of the Queen's Bench Division, dated 29 July 2014, in which he upheld claims by the Respondents for a declaration and injunctive relief arising out of a contract of employment between them and the Appellant.

THE FACTS IN OUTLINE

2. The Respondents are inter-dealer brokers. The Appellant joined them as a derivatives broker in May 2009. He signed a new contract of employment in 2011. The initial term of the contract was three years from September 22 2011, terminable by him thereafter by twelve months' written notice given on or after that date. The contract contained a garden leave provision and provision for various post termination restraints: I give more details below. His salary was £60,000 p.a. The contract also records that the Respondents may pay bonuses on a "purely discretionary" basis: no doubt, though we were given no details, bonus payments were expected to, and did, contribute substantially to his overall remuneration.
3. On 5 March this year, while still employed by the Respondents, the Appellant signed an employment agreement with one of their principal competitors, EOX Holdings Ltd., under which he would commence employment with a subsidiary of EOX in New York on 1 January 2015. He did not tell the Respondents straightaway but on 27 March he went to the office of one of the directors, Mr Finegold, and told him that he "was leaving Sunrise and wanted to leave now". He was told to go back to work until the director with primary responsibility for his area of work, Mr Gibbs, was available. However, he did not do so; he left the office and has not returned to work since.
4. On 9 April the Appellant had a meeting with the Respondents' general counsel, Mr Chiappe. He was told that he should come back to work with a view to agreeing a sensible termination plan if that was still what he wanted. He declined to do so. On 16 April he sent an e-mail to Mr Chiappe as follows:

"Thanks for your time last week. Pursuant to our conversations, I wanted to note a few things which I hope will go some way towards easing/alleviating any fears Sunrise may have about me posing an immediate threat to them.

As discussed last Wednesday, I am currently in NYC [New York] beginning the process of relocating here permanently. This is going to take some time and realistically there is no way I am going to be in a position to begin working in the near future. Therefore I can safely assure Sunrise (and can confirm so more formally in writing if needed) that I will not start work anywhere else before September 2014 and I will agree to remain on garden leave until then.

…"

5. In the light of the Appellant's continuing absence from work the Respondents decided not to make the monthly payment of salary and bonus that would otherwise have been due on 1 May.
6. On 25 April the Respondents' solicitors, Twenty Twenty Law, wrote to the Appellant. They reminded him that under his contract of employment he had no right to terminate before September next year. The letter continued:

"For the avoidance of doubt our client does not accept your purported resignation. You have not given notice to terminate in accordance with your contract and hence you remain employed, not in a period of notice, and fully bound by the terms of your employment contract. As you are not in a period of notice, your request to be placed on garden leave is misconceived."

They required the Appellant to return to work by 30 April and, additionally, reserved the right "to pursue a claim against you personally for the substantial quantifiable losses it [i.e. the Respondents] has incurred and continues to suffer as a result of your breach". He was asked to confirm whether he had been offered any other employment: the Respondents had at that stage not been told about his agreement with EOX.

7. Solicitors instructed by the Appellant, Mishcon de Reya, replied on his behalf on 29 April. They contended that he had resigned with immediate effect on 27 March and said that he would not be returning to work. They said that he had accepted an offer of employment from EOX in New York, though no further details were given.
8. I need not trace the details of the inter-solicitor correspondence that followed. Mishcons' primary position remained that the Appellant had resigned on 27 March and that his employment had terminated on that date, but they also asserted by way of alternative that he was entitled to terminate his contract by reason of the non-payment of his salary and bonus for April. Twenty Twenty's position remained that the contract of employment had not been terminated. They said, however, that the Respondents would not insist on the Appellant remaining in employment until September 2015 and were prepared to treat his e-mail of 16 April as notice effective to terminate the contract after six months, i.e. on 16 October this year. They required him to return to work until that date and made it clear that the Respondents would not put him on garden leave.
9. The Appellant contended at the trial that the Respondents did not really want him to return to work and that their insistence that he do so was entirely tactical. The Judge found that the Respondents had indeed initially wanted him back, because he was a valued employee and they hoped that they could get him to change his mind about leaving. However, he also found that that changed when they were told that he was going to EOX, and that thereafter they would have wished to keep him as far away as possible from their clients and their information.

THE RELEVANT CONTRACTUAL TERMS

10. Clause 11 of the contract of employment prohibited the Appellant during the currency of his employment from being engaged in any other business without the Respondents' written consent.
11. Clause 15 of the contract reads as follows:

"15. GARDEN LEAVE

15.1 Following service of notice to terminate the Appointment by either party, or if the Employee purports to terminate the Appointment in breach of contract, and, if the Employer so decides, at any time during the Appointment the Employer may by written notice require the Employee not to perform any services (or to perform only specified services) for the Employer until a specified date or the termination of the Appointment. Any period of Garden Leave shall not normally exceed 6 months.

15.2 During any period of Garden Leave the Employer shall be under no obligation to provide any work to, or vest any powers in, the Employee who shall have no right to perform any services for the Employer.

15.3 During any period of Garden Leave the Employee shall:

(a) continue to receive his salary and all contractual benefits in the usual way and subject to the terms of any benefit arrangement;

(b) remain an employee of the Employer and be bound by the terms of this agreement;

(c) not, without the prior written consent of the Board, attend his place of work or any other premises of the Employer;

(d) not, without prior written consent of the Board, contact or deal with (or attempt to contact or deal with) any member, officer, employee, consultant, client, customer, supplier, agent, distributor, shareholder, adviser or other business contact of the Employer; and

(e) (except during any periods taken as holiday in the usual way) ensure that the Board knows where he will be and how he can be contacted during each working day and shall comply with any written requests to contact a specified employee of the Employer at specified intervals."

12. Clause 17 is headed "Post-Termination Restrictions". The restrictions are set out in clause 17.1. I need not reproduce them here, since nothing turns on their terms. They include prohibitions on solicitation of customers and staff and – at (c) – a prohibition of the Appellant being "involved in any capacity with any business concern which is (or intends to be) in competition with" any brokerage business of the kind in which the Respondents and its associated companies were involved. All the restrictions with which we are concerned are expressed to run "for 6 months after Termination".
13. Clause 17.4 reads as follows:

"The periods for which the restrictions in clause 17.1 apply shall be reduced by any period that the Employee spends on Garden Leave immediately prior to Termination."

This was referred to before us as "the set-off provision". It was no doubt drafted to take account of Neill LJ's observation in Credit Suisse Asset Management Ltd. v Armstrong [1996] ICR 882 that in assessing the reasonableness of a post-termination restriction it may be material that the employee could (and in practice probably would) have spent a long period of notice on garden leave: see at p. 894 B-D.

THE PROCEEDINGS

14. On 19 May the Respondents issued a claim form seeking a declaration that the Appellant remained an employee and would do so until 16 October, together with injunctions enforcing his obligations as to solicitation and working for a competitor both up to that date and thereafter to 16 April 2015. Directions were made by consent for a speedy trial and for the Appellant to be restrained in the meantime from working for any competitor or soliciting the Respondents' clients or employees.
15. The trial took place on 25 and 26 July. The Respondents were represented by Mr Michael Duggan QC and the Appellant by Mr Nick De Marco. The Deputy Judge produced a full and clear draft judgment over the following weekend. It was circulated to counsel on 28 July and a final judgment was handed down on 29 July.
16. The Judge's decision was that the Appellant's contract had not been terminated and that he was accordingly prohibited from accepting employment with EOX until 16 October 2014. In addition he held that the Respondents were entitled to injunctive relief to enforce the post-termination covenants, but only until 27 January 2015 rather than for the full period of six months. Paragraph 1 of his order of the same date declared that:

"The Defendant remains an employee of the Claimant as at the date of this Order, and (unless something occurs to change the position in the meantime) will remain an employee of the Claimant until the reduced period of notice to terminate the contract of employment dated 21 October 2011 between the Claimant and the Defendant ("the Contract") to which the Claimant has agreed expires on 16 October 2014."

Paragraphs 2-6 contain the injunctive relief. As to that, the Judge made separate orders in relation to the period up to 16 October and the period from that date to 27 January next year, reflecting some differences of detail with which I need not be concerned; but the core of the restriction as regards both periods was that the Appellant must not work in any way for EOX or any other competitive business.

THE JUDGE'S REASONING

17. At the start of the section of the judgment containing his analysis and conclusions the Judge said this:

"For the sake of clarity, it … seems to me to be necessary to separate the analysis of the extent of the parties' legal rights from the subsequent consideration of the remedies that are available and appropriate to enforce those rights, once they have been identified at the first stage."

That was, if I may say so, entirely the correct approach.

18. So far as the question of legal rights was concerned, the Judge noted that, as confirmed by the decision of the Supreme Court in Geys v Société Generale [2013] 1 AC 523, the Respondents were entitled to choose whether to accept the repudiation of the contract represented by the Appellant's purported resignation or – provided they had good reason – to affirm the contract and keep it alive. He held that the Respondents plainly had a good reason to keep the contract alive to 16 October. That left the question whether the Appellant had become entitled to terminate the contract in May as a result of the Respondents' failure to pay his salary and bonus for April. The Judge held that that did not constitute a breach on the part of the Respondents because the Appellant's entitlement to be paid was dependent on his being ready and willing to work, which he had made it clear that he was not. He had earlier referred to the principle succinctly stated in the headnote to Miles v Wakefield Metropolitan District Council [1987] 1 AC 539, as follows:

"An employee's right to remuneration depended on his doing or being willing to do the work that he was employed to do and if he declined to do that work the employer need not pay him".

He concluded, at para. 62:

"It follows that, in my judgment, Mr Rodgers still remains employed by Sunrise, and (and unless something occurs to change the position in the meantime) will so remain until the reduced period of notice to which Sunrise has voluntarily agreed expires on 16 October 2014."

This part of his decision is not challenged before us.

19. Turning to the question of remedy, the Judge dealt separately with the period up to 16 October, i.e. while the Appellant remained an employee, and the period post-termination.
20. So far as the former period is concerned, he found that prima facie the Respondents were entitled to an injunction preventing the Appellant from working for a competitor, and from soliciting their clients or employees, which would be a plain breach of his duty of loyalty. The only reason for withholding relief would be, in accordance with the principle that the Court will not enforce a contract for personal services, if the effect of such an injunction would be to compel him to work for the Respondents. He held at para. 68 of his judgment that it would be inappropriate for him to make an order preventing the Appellant from doing work of any kind during his notice period, but he continued:

"69. However, in my judgment, an injunction requiring Mr Rodgers to obey the terms of the Contract until 16^th October 2014 – at least to the extent of not working for EOX or for any similar competitor firm to Sunrise, and not contacting his former clients from Sunrise – would be an appropriate Order for me to make. Such an Order would not mean that Mr Rodgers "would either have to go to on working for his former employers or starve or be idle". Having regard to the particular facts of his case, and bearing in mind the probable effect of such an injunction on the psychological and material need of Mr Rodgers to maintain the skill or talent, it seems to me that such an injunction would have no relevant compulsive effect, and so would not be likely to offend the statutory prohibition. Nor would such an injunction be oppressive to Mr Rodgers.

70. On the contrary, Mr Rodgers himself was quite happy to confirm to Sunrise in his 16 April 2014 email that he would not start work elsewhere until September 2014. In that context, the extra month to 17 October 2014 can hardly be said to be materially compulsive on him to return to his former employer, or to be oppressive. Moreover, although Mr Rodgers naturally wishes to start work for EOX as soon as possible, the Employment Contract which he signed in early March 2014 had a start date as late as 1^st January 2015."

21. At para. 71 of the judgment the Judge considered a submission that if he made an order enforcing the contract during the notice period, he should – by analogy, as he put it, with the garden leave cases – require the Respondents to pay the Appellant his salary and other benefits. He rejected that submission. He said:

"In this case, Sunrise has not put Mr Rodgers on 'garden leave'. Mr Rodgers has simply absented himself from work. It is, however, implicit in my Order that, should Mr Rodgers (contrary to his settled and stated intention) in fact choose to return to work out his notice with Sunrise, Sunrise must keep its promise to pay him in accordance with the Contract terms."

22. Turning to the period after 16 October, the Judge began by recording that it had not been submitted that the post-termination restraints were unenforceable as being in restraint of trade, judged as at the date they were entered into. He continued:

"However, that does not automatically mean that the Court should enforce them by injunction at the time of termination. That issue must be judged in the light of the circumstances as they exist at the time when the Court is asked to make orders to enforce them."

It has not been suggested that that was a wrong approach. Mr De Marco had submitted that it would indeed be wrong, in the events which had happened, to enforce the restrictions in cl. 17. He said that the set-off provision in cl. 17.4 (see para. 13 above) reflected a recognition on the part of the Respondents that the maximum prohibition on competition/solicitation that they reasonably required was six months from the point at which the Appellant ceased to do his job. By 16 October the Appellant would already have been away from his work for over six-and-a-half months (counting from 27 March), albeit not as a result of the operation of cl. 15, and accordingly no further restraint was necessary or should be enforced.

23. At para. 73 of his judgment the Judge acknowledged that that submission had considerable force; but he continued:

"74. However, I bear in mind that the Contract requires a minimum of 12 months' notice from the employee, and states that the period of garden leave will not usually exceed 6 months of that 12. I also accept Mr Gibbs' evidence that, in the case of a "good leaver" who (unlike Mr Rodgers) gave the full contractual period of notice, between 2 and 6 months of the first half of the notice period would be spent in a structured handover process, which would be designed to help Sunrise to keep the departing broker's clients for itself.

75. In my judgment, I can properly take that factor into account in deciding what the maximum period reasonably necessary for the protection of Sunrise's legitimate interests is. Doing the best I can, it seems to me that I can properly add 4 months (being the middle of Mr Gibbs' 2-6 month estimate) to the 6 month period specified in the covenants in clause 17, to make a total period of 10 months from the last client contact.

76. Since, in Mr Rodgers' case, his last client contact was on 27 March 2014, it seems to me that I should limit any order to enforce the post-termination covenants in the Contract so as to expire 10 months after that date, on 26 January 2015. Again, having regard to the 1^st January 2015 start date agreed by Mr Rodgers for his Employment Contract with EOX, it does not seem to me that such an Order would be oppressive to Mr Rodgers."

THE ISSUES ON THIS APPEAL

24. The Appellant's grounds of appeal were pleaded, and the skeleton argument drafted, by Mr Paul Goulding QC and Mr De Marco, but in the event he has been represented before us by Mr David Craig. The pleaded grounds are as follows:

"(A) The Learned Judge erred in granting an injunction to restrain the Defendant from working in competition with the Claimant until after the expiry of his notice period on 16 October 2014 in the absence of any undertaking by the Claimant to pay the Defendant's salary and provide other contractual benefits.

(B) The Learned Judge erred in any event by restraining the Defendant for a period of 10 months from the last day on which he attended work in circumstances where the Contract only provide for a maximum period of 6 months' restraint.

(C) The Learned Judge erred in applying the incorrect test of "oppressiveness" for the exercise of his discretion whether or not to grant the injunction.

(D) The Learned Judge erred in any event in ordering the Defendant pay substantially all of the Claimant's costs."

25. We directed that ground (D) would not be considered at the hearing but would be determined on the papers if it remained live following our decision on the other grounds.

(A) PAYMENT OF REMUNERATION DURING NOTICE PERIOD

26. By way of preliminary, it is important that I should emphasise that Mr Craig accepted that the Appellant had no contractual claim for payment in respect of his notice period: that follows from the absence of any challenge to the Judge's finding that he was not entitled to be paid because he was not ready and willing to work (see para. 18 above). This distinguishes the present case from those in which the employer has exercised a right under a garden leave clause not to give the employee work during his notice period: in such a case the clause will itself assure his continuing entitlement to be paid, and no order from the Court is necessary (even if an undertaking may be sought in order to reinforce the obligation). Here the Respondents declined to operate the garden leave clause and chose, as they were entitled to, to require the Appellant to continue working, but he did not do so. Thus any obligation on the Respondents to pay his salary must be based on the circumstance that they are seeking injunctive relief.
27. As to that, Mr Craig submitted that in cases where an employer is granted injunctive relief restraining an employee from working for a competitor during the currency of the contract^[1], it has for many years been the virtually invariable practice that he should be required to undertake to pay the employee's remuneration and other benefits, whether he works or not; and that there was no justification for such an undertaking not being required in the present case.
28. Although it is indeed common practice for such an undertaking to be given or volunteered it is important to identify the rationale for that practice. Ignoring cases where the employer is in any event obliged to pay because the employee is still working or has been put in the garden, that rationale lies in the rule that the Court will not order specific performance of a contract for personal services. It is a well-established corollary of that rule that the Court will also not grant an injunction to enforce a prohibition on an employee^[2] from working for anyone other than the employer^[3] if that will produce the same result indirectly – that is, because if the employee cannot work for anyone else he will be compelled to continue to work for the employer. This was first recognised in Whitwood Chemical Co. v Hardman [1891] 2 Ch 416. There have been a number of further cases on the point over the intervening years, including Rely-a-Bell Burglar and Fire Alarm Co Ltd v Eisler [1926] 1 Ch 609, which seems to have been the first case in which the pressures potentially compelling the employee to return to work were characterised as "idleness and starvation" (see at p. 616). The modern approach was most authoritatively expounded by this Court in Warren v Mendy [1989] 1 WLR 583. It is as a response to that potential obstacle that employers seeking injunctive relief have in recent years been prepared to volunteer, and submit to undertakings, to pay the employee during the remainder of the term, whether he works or not. That that is the origin of the practice on which the Appellant relies is evident from the first of the authorities in which such an undertaking was volunteered, Evening Standard Ltd. v Henderson [1987] ICR 588: see per Lawton LJ at pp. 592-3 and 594D. The same rationale is clearly expressed by Dillon LJ in another of the early cases, Provident Financial Group plc v Hayward [1989] ICR 160: see at pp. 165-6.
29. Mr Craig suggested an alternative rationale, which he described as "mutuality" or "quid pro quo": if the employer is seeking to hold the employee to his obligations under the contract he should be prepared to discharge his own obligation to pay the contractual remuneration. But that is not the way that it is put in the cases, and I cannot see that mutuality has any application where the employee is withholding the consideration for his remuneration by not being ready and willing to work.
30. It follows that the only principle in play is that an injunction should not be granted where the effect will be to compel the employee to continue to work for the employer. If the employer does not undertake to pay the employee, whether he works or not, he may fall foul of that principle; but whether that is the consequence will depend on the facts of the particular case. That is clearly illustrated by the recent decision of this Court in Standard Life Health Care Ltd. v Gorman [2010] IRLR 233, where an injunction was upheld preventing a group of commission agents employed by Standard Life^[4] from going to work for a competitor, AXA, during the currency of their notice periods (which were up to three months). The Court proceeded on the basis that, because of breaches which they had committed, there was no contractual obligation to pay the agents, and it rejected the argument that it should be a condition of relief that they be paid nevertheless. Waller LJ, who delivered the leading judgment, described that submission as "quite unmeritorious". He said, at para. 30 (p. 237):

"What is suggested is that there should be some rule requiring Standard Life to give some form of undertaking as to remuneration which goes beyond their obligations under the contract, in order that they should be entitled to obtain an injunction. I am doubtful whether even without the factors to which I shall refer hereafter, that should be required. I say that simply on the basis that the agent could see what the position was; there was a period of notice required, they could have served out that notice acting loyally for Standard Life. But they chose to register for a rival, thus making the possibility of continuing to act for Standard Life impossible; that was their choice."

He went on, at para. 31, to note that it appeared in any event that AXA had been paying the agents during their notice period, at least to some extent. It was suggested in the Appellant's skeleton argument that that was a crucial distinction from the present case. I do not accept this. The fact of payment by AXA is the further "factor" referred to by Waller LJ at para. 30, and he makes it clear that his decision might well have been the same even without it. In any event, to the extent that he placed weight on that factor, that is not inconsistent with the approach identified at the start of this paragraph: its relevance was that, on the facts of the particular case, it tended to negative any case that preventing the agents from starting work straightaway with AXA would mean that they "starved". It was also said to be a distinction from the present case that Standard Life had been exercising a contractual entitlement to suspend the agents without pay because of their breaches. But that is not a material distinction: suspension for breach and refusal to work are simply the reasons why in the particular case the employee had no contractual right to be paid. The point of principle remains, in Waller LJ's words, that there is no "rule requiring [the employers] to give some form of undertaking as to remuneration which goes beyond their obligations under the contract, in order that they should be entitled to obtain an injunction".

31. Mr Craig sought to derive some support from the recent decision of Warby J in Elsevier Ltd v Munro [2014] EWHC (QB) 2648, [2014] IRLR 766. But I do not see how it assists him. The claim in that case was for an injunction preventing the employee going to work for another employer during the currency of his twelve-month notice period. The employer wanted the employee to continue to work normally for part of the period, after which it would put him on garden leave. The Judge referred at para. 56 of his judgment (p. 775) to the "idleness and starvation" cases and observed that there was no question of starvation in the instant case because the employer had made it clear that the employee would be paid for the remainder of the notice period whether or not he worked. The issue, rather, turned on "idleness". There was no discussion as to whether the employer's undertaking to pay was necessary. We do not know why the employer did not choose to contend, as it might have, that it would only pay the employee if he expressed himself ready and willing to work or if it operated the garden leave clause. It may have been a forensic decision simply to close down the issue, or there may have been a concern about the length of the restriction, which was for twelve months. But none of that assists on the point before us.
32. The essential question which we have to decide is thus whether the Judge was obliged to find that restraining the Appellant from working for EOX, without any undertaking from the Respondents to pay him, was liable to compel him to return to work for them. As already noted, the issue is often expressed, particularly in the older cases, as being whether the effect of the injunction would be to reduce the employee to "idleness and starvation" if he did not return to work. That phrase is more colourful than helpful. In Warren v Mendy, at pp. 845-5, Nourse LJ, giving the judgment of the Court, approved Oliver J's observation in Nichols Advanced Vehicle Systems Inc v. De Angelis (unreported 21.12.79) that:

"It simply does not … seem to me to be realistic to say that nothing short of idleness and starvation is compulsive, and therefore no injunction which involves anything less than that can be said to infringe the principle that the court will not specifically enforce a contract of personal services."

Thus, as regards "starvation", a degree of financial hardship short of actual destitution may suffice to engage the principle. What is required is a realistic evaluation of whether the pressures operating on the employee in the particular case are in truth liable to compel him to return to work for the employer. As Nourse LJ put it in Warren v Mendy (at p. 867 D-F), in a passage expressly cited by the Judge:

"… The Court ought not to enforce the performance of the negative obligations if their enforcement will effectively compel the servant to perform his positive obligations under the contract. Compulsion is a question to be decided on the facts of each case, with a realistic regard for the probable reaction of an injunction on the psychological and material, and sometimes the physical, need of the servant to maintain the skill or talent. The longer the term for which an injunction is sought, the more readily will compulsion be inferred. …"

(The focus in that passage on the need to maintain the employee's skills reflects the particular issues in that case, but the same broad approach will apply to other pressures on which the employee may rely.)

33. However, even with that degree of modification, the test remains whether the pressures on the employee will be such as to compel him to return to work. It is not simply whether the employee will suffer some degree of hardship by being held to the negative obligations in his contract – and certainly not, as Mr Craig at one point submitted, whether he will be prevented from earning his living during the period of the restraint. It is important not to lose sight of the fact that the situation with which we are concerned is one where the employee's contract of employment subsists, and it is only because of his unwillingness to perform his obligations under it that he is not being paid. In Warren v Mendy, immediately after the passage which I have quoted, Nourse LJ went on to say (pp. 867-8):

"In stating the principles as we have, we are not to be taken as intending to pay anything less than a full and proper regard to the sanctity of contract. No judge would wish to detract from his duty to enforce the performance of contracts to the very limit which established principles allow him to go. … To that end the judge will scrutinise most carefully, even sceptically, any claim by the servant that he is under the human necessity of maintaining the skill or talent and thus will be compelled to perform the contract, … . But if, having done that, the judge is satisfied that the grant of an injunction will effectively compel performance of the contract, he ought to refuse it."

34. In Warren v Mendy (see pp. 865-6) Nourse LJ makes the point that in considering the compulsive effect of an injunction question the length of the restraint is a crucial consideration: broadly speaking the Court is likely to enforce short-term but not long-term obligations. Understandably, however, he declined to define precisely where the line between short-term and long-term should be drawn, beyond noting that the longest period for which such a restraint seems to have been imposed in the cases preceding Warner Brothers Pictures Inc v Nelson [1937] 1 KB 209, which the Court in practice disapproved, was twenty weeks^[5]; and that the two-year restraint sought in Warren v Mendy itself was too long. (It is worth noting in this context that in the early cases where the "indirect specific performance" principle was developed the periods in respect of which the employer was seeking relief were often very long. In Whitwood v Harman the unexpired term of the contract was over four years, and the relief sought would have prevented the employee from working for anyone else at all. In Ehrman v Bartholomew [1898] 1 Ch 671 the unexpired term was nine years. In William Robinson & Co Ltd v Heuer [1898] 2 Ch 451, the Court granted an injunction preventing the employee for working for a competitor for the two-year balance of the initial five-year term of the contract, but it made it clear that it would not have granted it in respect of a five-year extension period in respect of which the employer had originally sought relief.)
35. Against that background, I can turn to Mr Craig's challenge to the Judge's decision on the compulsion issue. He made the following points:

(1) The Judge had attached no weight to the Appellant's evidence, which he had expressly accepted, that he was at the date of the trial living on his savings, which were likely to run out by the end of September.

(2) The Judge had relied at para. 70 of his judgment on the fact that the Appellant had said in his e-mail of 16 April that he would not start work elsewhere until September; but that overlooked the fact that what he was offering in that e-mail was to "remain on garden leave", which meant that he would be paid.

(3) It was wrong of the Judge to place weight on the fact that the Appellant's contract with EOX had a start-date of 1 January 2015, since he had stated in his evidence that he was anxious to start work at EOX as soon as he could.

(4) The Judge had failed to take account of Mr Gibbs' statement in cross-examination that "I stopped paying [the Appellant] because we wanted him back to work", which showed that the Respondents were indeed seeking to use the withholding of pay to compel him to return.

36. It is important to start by noting that the Appellant had advanced almost no evidence directed at establishing that preventing him from going to work for EOX, and not paying him during his notice period, would cause him serious financial hardship. Those topics are not addressed in his witness statement, and he had given no disclosure relating to his financial circumstances. Mr De Marco elicited by way of supplementary evidence in chief the statement referred to above that he was living on his savings, which would "run out in perhaps two months". He repeated that in cross-examination, adding only that after his savings ran out he would have to start "pulling pints" and that he had not been earning at a high level for long and it would be nonsense to describe him as independently wealthy. Mr Duggan elicited from him that he would be paid a signing-on bonus of $50,000 as soon as he started with EOX, together with a salary of $12,500 per month and substantial bonus commission expectations. It was his evidence that EOX was very keen to have him and that it would wait even until after 1 January 2015 if it had to; so his prospects were good. That material, even if the Judge accepted it as far as it went, does not in my view mean that he was obliged to conclude that the Appellant would be compelled by financial hardship to return to work for the Respondents. It is pertinent to note that the Appellant had agreed to the equivalent restraints for six months following the termination of his employment, during which no question of his being paid could arise.
37. I should add for completeness, though this was not the focus of Mr Craig's submissions, that the case that the Appellant's skills might atrophy through idleness was even more meagrely supported by evidence than his case on "starvation". Again, there is nothing about this in his witness statement. Mr De Marco asked him in chief "how important is it for you to be working ?" and received a general answer about the importance of maintaining relationships with clients and keeping in touch with changes in the market; but that is all. Again, he would in any event have suffered the equivalent period of idleness under the agreed post-termination restraints.
38. That addresses Mr Craig's first point. As to his second, in my view the Judge was fully entitled to regard the fact that the Appellant had agreed to a contractual start-date with EOX of 1 January 2015 as reinforcing the conclusion that he could (to put it loosely) cope until that date – and a fortiori until 16 October – if he had to. It is irrelevant that he gave evidence that he was keen to start work earlier if possible: that is hardly surprising, but what matters is that it was clearly contemplated when he entered into his agreement with EOX that he might not be able to start till January.
39. There is more force in Mr Craig's submission that the Appellant's e-mail of 16 March offering to go on garden leave until September did not connote a willingness to remain unpaid for that period. But the point is not as clear-cut as he suggests. The thrust of the e-mail is not that the Appellant is prepared not to start to work for EOX before September provided he is put on garden leave (and therefore goes on being paid). Rather, it is that he cannot start with EOX before that date anyway because of the difficulties of relocating to New York, and the reference to garden leave reads not so much as a requirement that he be paid but as a concession that he will remain in the garden and so out of the market. If that is the correct reading, it was entirely legitimate for the Judge to take it into account as an indication that the Claimant was relaxed about not working before October, even if he was unpaid. However, even if his relaxedness was indeed contingent on his being paid, that does not undermine the other points which militate against any finding of compulsion.
40. Finally, as to Mr Gibbs' remark about withholding the Appellant's pay because he wanted him to come back to work, I am far from sure that in context that is to be read as meaning that his sole motivation was to put financial pressure on him. But, even if it is, the Respondents' motive for withholding payment is not what matters. They were entitled not to pay the Appellant because he was not prepared to work. The only question is the potential compulsive effect of that non-payment, in circumstances where he was restrained from working for a competitor.
41. I should address one other point made by Mr Craig. He submitted that in considering the "compulsive" effect of the relief sought it was necessary to look not only at the balance of the notice period but also at the period of post-termination restraint. The present case should accordingly be treated as one where the Appellant would be prevented from working and earning in the only business he knows not simply for six months but for ten. I do not think that is the right approach. The obligation of an employee not to work for a competitor during the currency of his employment cannot be equated with an obligation under a clause providing for post-termination restraints; and the principles governing their enforcement by injunction are different. In the former case the obligation arises inherently from the employee's duty of fidelity to the employer; and the Court will, rightly, be very ready to enforce it, subject only to the constraints discussed above deriving from the rule against enforcement of a contract for personal services. In the latter case the restraint on the employee's activities is prima facie unlawful and requires to be fully justified in accordance with the well-known principles. The enforceability of these separate obligations should be addressed separately and in their own terms.^[6] I am conscious that this may appear a little artificial, since long notice periods (coupled with the right to put the employee on garden leave) and post-termination restraints may both, from an employer's point of view, be means to the same end, namely delaying the date at which an employee who wishes to leave can go to work for a competitor. But the distinctions between pre- and post-termination restraint are nevertheless real, and it is liable to lead to confusion and loss of principle if the two streams are mingled.
42. I would accordingly reject this ground of appeal. Before leaving it, however, I wish to make two further points.
43. First, it was suggested in the Appellant's skeleton argument that if the Judge's decision on this point were upheld it would have "far-reaching consequences for the law in this field", and that employers seeking to hold employees to their notice periods would no longer have to undertake to pay them, at least where the periods were not so long as to give rise to a "compulsion" argument. I do not accept this. Cases of this kind are fact-sensitive. The issue raised by this ground has only arisen because the Respondents have not invoked their right to put the Appellant on garden leave. If they had, he would have been entitled to be paid. But that is not a course which it will often be safe for an employer to take. Usually when an employee with important client contacts, or access to confidential information, gives notice to leave in order to join a competitor the employer will in practice have no choice but to invoke the garden leave clause (assuming there is one^[7]). Otherwise the employee will be entitled to carry on with his normal work, maintaining his contacts and up-to-date information (in principle quite innocently) until the day he leaves: that is generally unacceptable to employers. It is only because in this case the Appellant left work unilaterally and made no offer to return that the Respondents were not faced with that choice: as to this, see further para. 50 below. I should also note that this was a final injunction granted after a trial, when the legal rights of the parties had been authoritatively established: different considerations might arise at the stage of interim relief.
44. Secondly, although I have commented above on the Appellant's failure to provide any substantial information about his financial situation I would not want to encourage the notion that in every case of this kind an elaborate examination of the employee's means and resources will be appropriate, particularly given that the issue will typically arise in the context of an interlocutory application or a speedy trial. All that is required is sufficient information to give the Court the basis for a broad assessment of the compulsive effect of the restriction sought.

(B) THE FURTHER FOUR MONTHS

45. Mr Craig repeated the submission made to the Judge (see para. 22 above) that the set-off provision implied an acceptance on the part of the Respondents that they only needed protection for six months from the date that the Appellant ceased to have contact with clients. In the events that had happened he had had no such contact since 27 March, so they had had the full protection which they required. Although the Appellant could not rely on the set-off provision as such, since it depended on the garden leave clause having been operated, the effect was the same as if it had been, and as a matter of discretion no relief should be granted. The Judge's answer to that (see para. 23) was that if the Appellant had given the notice required by his contract, which was twelve months, he would not have been put on garden leave straightaway, so that the period for which he was in due course restrained would have started, and ended, later.
46. Mr Craig submitted that that reasoning was flawed. The only justification for a post-termination restraint is that the employer needs a period when the employee is unable to make use of his relationship with clients or staff, or his access to confidential information, acquired in his capacity as employee. The length of any period of restraint imposed must depend on how long the Court judges to be necessary for that purpose. From that perspective, the fact that if the Appellant had stayed at work the period of restraint might have started later is immaterial: whenever it would have started, the only question is how long was necessary, as from that point, to protect the Respondents' legitimate interests. The Appellant's breach of contract in not returning to work so as to conduct an orderly hand-over before commencing his garden leave may be reprehensible; but it is wrong to extend the period of that restraint in order to punish him for that breach or even – by what he characterised as an "illegitimate extension of the principle of springboard relief" – to compensate the Respondents for its impact.
47. Mr Duggan's answer to that submission was that in circumstances where an employee has left work without conducting an orderly hand-over a longer period would in principle be necessary for the employer to neutralise the effect of the relationships with clients and colleagues that the employee had built up. That was what the Judge had in mind when he referred to Mr Gibbs' evidence that a structured hand-over process would be "designed to help [the Respondents] to keep the departing broker's clients for [themselves]" (see para. 74).
48. Although I was initially attracted by Mr Craig's argument on this point, on reflection I think that the Judge was entitled to have regard to what would have happened if the Appellant had complied with his contract. The essential point is that he was not treating the "structured hand-over point" as material to the validity of the post-termination restraint: that was not in issue. Rather, he was considering it as a factor relevant to the question of whether, as invited by Mr De Marco, he should as a matter of discretion decline to enforce that restraint. In that context he was in my view entitled to treat the Appellant's failure to assist in a hand-over as a factor to be weighed against the point made by Mr De Marco.
49. I should in this connection refer to what Mr Duggan said was a formal, though not a substantial, error in the way in which the Judge gave effect in the order to his decision on this point. He referred us to Credit Suisse v Armstrong, to which I have referred in a different context at para. 13 above. In that case the employers sought to enforce a six-month post-termination restraint against employees who had already been on garden leave for six months. The employees argued that the time spent on garden leave had given the employer, albeit by another means, the protection for which it had stipulated in the restrictive covenant. (That is of course similar to the point being run in this case, but the difference is that the Respondents here have not invoked the garden leave provision.) Neill LJ rejected that argument on the basis that, whereas the Court has a discretion whether to enforce the negative covenants which operate during the currency of the contract there is no such discretion as regards the post-termination restraints: if they are valid they must be enforced in full (see pp. 893-4). Mr Duggan submitted that it followed that what the Judge should have done was to enforce the "pre-termination" restraint only for four months, i.e. up to 27 July 2014, and then enforce the post-termination restraint for the full term of six months from that date. It is not necessary for us to decide this point, since neither party is positively seeking to have the order amended: Mr Craig expressed himself neutral, and Mr Duggan raised the point only because he felt professionally obliged to. But I doubt if Mr Duggan's concern is well-founded. It is accepted that even when a Court has held that a restrictive covenant is valid, on the basis that it was reasonable when entered into, it is entitled to refuse relief on the basis that subsequent events have made it unreasonable to enforce it – see Goulding on Employee Competition, 2^nd ed., at paras. 5.311-2 (citing TFS Derivatives Ltd v Morgan [2004] EWHC (QB) 3181, [2005] IRLR 246, per Cox J at para. 39 (p. 252)). It is extremely unlikely that in the Credit Suisse case Neill LJ intended to impose any limit on that well-recognised discretion, and in fact he followed the passage referred to by Mr Duggan by recording a caveat that, exceptionally, the court might decline to enforce a restrictive covenant where a long period of garden leave had already elapsed, which appears to accept the existence of the very discretion with which we are concerned. I can see no reason in principle why the exercise of that discretion must be all-or-nothing: the changed circumstances in question might render it unreasonable to enforce the term for its full term but not for part.
50. Apart from the particular point advanced by Mr Craig, it is still necessary to consider whether, taking the two periods together, to enforce a ten-month restraint is unreasonable. In the particular circumstances of the present case I do not believe that it is. It is common ground that the Appellant could not have objected to a six-month post-termination restriction, during which time he would not have been paid. The fact that he is subject to an additional four months' restraint, also unpaid, is the consequence of his own refusal to return to work as asked. If he had done so, he would have had to be paid – as the Judge took care to point out in the final sentence of para. 71 of his judgment – and the likelihood is that he would in fact have been promptly put on garden leave, since the Respondents could not have afforded to let him continue to have contact with clients, in which case not only would he have been paid but the set-off provision would have operated to reduce the overall period of restraint to six months. Even if the Respondents would have been entitled to keep him at work for part of his notice period in order to effect a structured hand-over, and would have done so, thus delaying the start of the garden leave and the operation of the set-off provision, he would at least have been paid for that period. But he never put them in the position where they had to make that choice. The situation which he is in is thus one of his own making. I am conscious that there is room in cases of this kind for parties to take tactical positions which do not reflect their real intentions, and the Appellant may have been entitled to be sceptical of the Respondents' professed wish for him to come back to actual work (i.e. as opposed to being put on garden leave); but in order to call their bluff – if that is what it was – it was necessary for him to offer to do so. That does not seem to me to be mere formalism but a necessary first step in circumstances where he had unilaterally absented himself from work. Mr Craig said that, at least from mid-May, that would have been inconsistent with his stance that he had been constructively dismissed; but that stance was misconceived for the reasons given by the Judge. The position might perhaps be different in a case where relationships between employer and employee had wholly broken down; but that was not the Appellant's case.

(C) "OPPRESSIVENESS"

51. As it appeared in the skeleton argument, this ground appeared to be based on a general submission that the Judge had regarded himself as obliged to grant the injunction unless to do so would be "oppressive", relying on the well-known decision in Shelfer v City of London Electric Lighting Co [1895] 1 Ch 287. The submission was that that had been demonstrated by the recent decision of the Supreme Court in Coventry v Lawrence [2014] UKSC 13, [2014] 2 WLR 433, to be a wrong approach. However, as developed by Mr Craig the point was a good deal more particular, namely that the Judge had failed to consider whether damages would be an adequate remedy.
52. Mr Duggan said that the point had not been put that way before the Judge. Mr Craig pointed to a passage in Mr De Marco's pre-trial skeleton argument to the effect that an injunction ought not to be granted unless damages were not an adequate remedy. But Mr Duggan told us that that general point had not been developed in any submissions thereafter, which is why it is not referred to in the Judge's judgment: there is a reference, in passing, to the basic principle but no discussion of its application to the present case.
53. I accept that there was no positive argument advanced below that damages would be an adequate remedy for the Respondents if the Appellant joined EOX sooner than his contract permitted: what Mr Duggan told us is confirmed by the transcript of the closing submissions. I do not find that surprising. In a case of this kind there are evident and grave difficulties in assessing the loss which an employer may suffer from the employee taking work with a competitor: even where it is possible to identify clients who have transferred their business (which will not always be straightforward, particularly where the new employer is outside the jurisdiction) there may be real issues about causation and the related question of the length of the period for which the loss of the business could be said to be attributable to the employee's breach. If the sums potentially lost are large they will not be realistically recoverable from the employee in any event: in the present case no claim was advanced against EOX. There may be other intangible but real losses to the employer's reputation. I do not say that there may not be particular cases in which relief should be refused on the basis that damages are an adequate remedy – Mr Craig referred us to Phoenix Partners Group LLP v Asoyag [2010] EWHC 846 (QB), [2010] IRLR 594 – but unless a specific case to that effect was explicitly advanced, the Judge was in my view fully entitled to proceed on the assumption that injunctive relief was the appropriate remedy.
54. Mr Craig sought in this connection to place some reliance on the threat in Twenty Twenty's letter of 30 April to hold the Appellant liable for "the substantial quantifiable losses" that the Respondents had incurred and continued to incur (see para. 6 above). This piece of fairly formulaic sabre-rattling was of course written before it was even known that the Appellant was going to work for a competitor and it cannot sensibly be read as an assertion that all losses that the Respondents might suffer in the future as a result of the Appellant's breach would be quantifiable.
55. I should say for completeness that there is nothing in the point as originally pleaded and developed in the skeleton. It was entirely legitimate for the Judge to consider whether the grant of the relief sought would be "oppressive". He did indeed refer in a footnote to AL Smith LJ's reference in Shelfer to that being "the key question"; but it is perfectly clear from his judgment that he did not regard it as the only question. Mr Craig has identified no relevant consideration in the present case – apart from adequacy of damages – which the Judge is said to have overlooked as a result of referring to the oppressiveness criterion.

CONCLUSION

56. I would dismiss the appeal. If My Lord and My Lady agree, that means that ground (D) remains to be decided. As I have said, that will be dealt separately with on the basis of the skeleton arguments already lodged unless we find it necessary to seek further submissions.

Lady Justice Gloster:

57. I agree with both judgments.

Lord Justice Longmore:

58. Now that the Supreme Court in Geys v Société Generale [2013] 1 AC 523 has, by a majority, decided that the elective theory, rather than the automatic theory, of termination of contracts of employment is the correct theory, consequential conundrums (as predicted by Sir Robert Megarry V-C in Thomas Marshall Ltd v Guinle [1979] Ch. 227, 243 D) may begin to raise their heads. For example:-

i) if the employee decides to keep the contract alive, why should he not be allowed to sue for his salary or wages, a prospect which para 79 of Lord Wilson's judgment appears to leave open for further resolution;

ii) if the employer decides to keep the contract alive and seeks an injunction to restrain the employee from working for a rival during the fixed period of the contract or the notice period which the employee is bound to give, should the employer not be bound to continue to pay the employee, the problem which arises in this case; and

iii) if the employer decides to keep the contract alive, should he not be entitled to restrain his employer from working for a rival rather than be met by the mantra that the court will not specifically enforce a contract of employment? Both Lord Wilson at para 77 and Lord Sumption at para 119 refer to the more impersonal relationship that many employees now have with their employers. The line of cases in which restraints were imposed, beginning with Lumley v Wagner (1852) and continuing through Warner Bros. v Nelson (1937), received particular prominence in paras 72-74 of Lord Wilson's speech. This is a problem which also arises in this case.

59. I agree with the judgment of Underhill LJ that the appeal should be dismissed for the reasons he gives and would only add in relation to point (3) above that, in the light of my Lord's judgment, the observation of Cheshire, Fifoot and Furmston's Law of Contract (16^th ed.) 2012 page 802, in their discussion of the lack of readiness of the court to grant injunctions in employment cases,

"The distinction which the judges have drawn in these cases borders upon sophistry and suggests that, while bound to follow Lumley v Wagner when it forms a precise precedent, they are ready to adopt any possible argument to avoid it."

may need some revision.

Note 1    Typically this will be during a notice period; but the principle is the same in the case of a contract with a fixed term.     [Back]

Note 2    I use this term by way of shorthand to cover not only an employee under a contract of service but any person contracting to provide personal services.     [Back]

Note 3    The prohibition may be express, but even in the absence of an express prohibition the effect of the employee’s implied duty of fidelity would generally be to prevent him working for a competitor.     [Back]

Note 4    The agents were not employed under contracts of service and were not entitled to salary as such but only to an opportunity to earn commission. But that is not a material distinction for present purposes.     [Back]

Note 5    In fact in William Robinson & Co Ltd v Heuer (see text below) the period was substantially longer, though relief was limited to preventing the employee working for a competitor.    [Back]

Note 6    I acknowledge that in William Hill Organisation Ltd. v Foster [1999] ICR 291 Morritt LJ observed that courts should not grant relief to enforce a garden leave clause to a greater extent than would be covered by a justifiable restraint of trade clause: see at pp. 300-1. That is important, but it is not an issue in the present case: there is no suggestion that a six-month restriction on the Appellant working for a competitor was unjustifiable.     [Back]

Note 7    I should note for completeness that there may be circumstances in which the employer can, as a result of the employee’s breaches, decline to give him work to do even without an express garden leave provision in the contract: see SG&R Valuation Service Co LLC v Boudrais [2008] EWHC 1340 (QB), [2008] IRLR 770.     [Back]