Ex-employee ordered to pay £30,000 in damages and held to covenants

Following a High Court battle, a former employee has been ordered to pay his ex-employer almost £30,000 in damages for breach of fidelity, breach of confidence and misuse of Company information. Although it was questionable whether he had received proper consideration when he had entered into the restrictions, the Court went on to uphold his post-termination restrictive covenants.

Breach of contract

Mr Penfold was employed by Decorus as a Sales Account Manager.  He resigned, but before he had left the Company, he allegedly accessed Decorus' confidential information more than 40 times in order to compete with them via a new Company. This included accessing highly sensitive purchase logs which contained information such as:

• details of Decorus’ customers;
• details of the dates, quantity and price of their orders;
• details of profit made on each transaction; and
• renewal dates when further purchases would be likely.

His employer said there was no reason for him to access this information in the course of his duties.

The Court found that by doing so Mr Penfold had clearly breached his duty of good faith and fidelity to the Company while he was still employed.

Restrictive covenants

As well as this, the Court looked at the post-termination restrictive covenants in Mr Penfold’s  employment contract and whether these should be upheld: Following, cases such as Reuse Collections Ltd v Sendall which have made clear that employers who want to introduce or vary restrictive covenants after employment has begun must give the employee some kind of benefit (or ‘consideration’). Mr Penfold had argued that his covenants were not valid because he said he hadn't been given proper consideration when he signed up to them.  He had received a pay rise but this was following his appraisal more than a month before he signed up to the new restrictions.

However, the High Court disagreed with him. It decided that Mr Penfold had received valid consideration for signing up to the new restrictive covenants because he had entered into them as part of a three phase process:

1. A new appraisal system had been introduced;
2. He had been given a pay rise out of sync with his normal pay rise; and
3. Continued to be employed under a new contract.

Points for Employers

Although this is a potentially helpful case for employers looking to enforce covenants that have been signed or varied during an employee’s employment and where there is a question mark over whether proper consideration has been given, employers should be wary of relying on this case. In reaching this decision, the Court may well have been significantly swayed by Mr Penfold’s flagrant breaches of his contract and so it remains the case that if restrictive covenants are introduced/amended during employment, employees should be given consideration (such as a pay rise/promotion) at the same time making it clear that the promotion/pay rise is conditional upon them signing up to the new covenants.