The Court of Appeal has recently held in the case of Allen (t/a David Allen Chartered Accountants) v Dodd & Co  that an accountancy firm was not liable for inducing a breach of contract when it recruited an employee in breach of his contractual post-termination restrictions with his previous employer, after the firm received advice that the restrictions were not enforceable.
In order to bring a claim for inducing a breach of contract, the former employer must show that the new employer “knowingly and intentionally induced or procured the breach without reasonable justification”, and that the former employer has suffered some economic loss as a result.
In this case, although the legal advice obtained turned out to be incorrect, the accountancy firm had been entitled to rely on it and did so honestly.
In order for a new employer to be liable for the act of inducing an employee to breach his previous contract of employment, the former employer must prove the new employer’s actual knowledge of the breach; importantly, it is not for the new employer to prove an absolute belief that there would be no breach. In addition, the relevant knowledge was not simply knowledge of a fact, but knowledge of a legal outcome.
Acknowledging that lawyers rarely give unequivocal advice, the court held that people should be able to act on legal advice, responsibly sought, even if the advice turns out to be wrong.
The tort of inducing a breach of contract applied to all sorts of commercial contracts. While there were relatively clear guidelines about the enforceability of restrictive covenants in employment contracts, those guidelines did not exist in other fields of commercial activity.
The “constant diet” of contested breach of contract cases in the courts showed that legal outcomes were often difficult to predict. To insist on definitive advice that no breach would be committed would have a far reaching and negative effect on legitimate commercial activity.
This case highlights the need for employers to investigate whether prospective employees are bound by restrictive covenants set out in their previous contract of employment and to seek legal advice on the validity and enforcement of those covenants so that it can be demonstrated that the employer did not knowingly and intentionally induce any new employee to breach the restrictive covenants.
Farleys’ Employment and Commercial Litigation teams have extensive experience of advising clients on restrictive covenants and breach of employment contact. Contact us today on 0845 287 0939 or contact us by email.
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