Categories
Employment Injunctions The Employment Contract

3 Takeaways from the Ryanair V Peter Bellew High Court Case

The High Court case between Ryanair DAC and Peter Bellew is an important one because it gives us further guidance in the area of restrictive covenants in the contract of employment. A restrictive covenant is basically a covenant in a contract of employment preventing a departing employee from working for a competitor for a certain period of time after departing from his employment.

In Ryanair DAC the airline sought to prevent Mr Bellew from working for a competitor in any capacity for a period of 12 months after leaving Ryanair. This was what Mr Bellew had signed up for when he signed his contract of employment.

Ryanair sought to prevent him from taking up employment with Easyjet and sought an injunction in the High Court to enforce the covenants in his contract of employment with Ryanair. One of those covenants was as follows:

For a period of 12 months after the termination of your employment you shall not, without the prior written consent of the Company, directly or indirectly in any capacity either on your own behalf or in conjunction with or on behalf of any other Person;

a. be employed, engaged, concerned or interested in any capacity in any business wholly or partly in competition with the Company for air passenger services in any market;

b. solicit or entice or endeavour to solicit or entice away from the Company any person who was employed within in (sic.) a senior executive, managerial, or technical capacity by the Company.

1.2 If you receive an offer of employment or engagement during your employment with the Company, or before the expiry of the restriction period set out in this clause, you shall give the person or entity making the offer a copy of this clause.

The defendant in this matter fully admits that he freely signed the covenant and at the time of signing he fully understood its meaning and purpose but makes the case that he is not bound by said covenant.

The case law in this regard provides to be useful and instructive as to the approach adopted by the Irish Courts in relation to restrictive covenants.

Macken v. O’Reilly 1979 I.L.R.M 79

Although this case is not as recent as the case law outlined in the rest of this article, the holding of the court in relation to the matter at hand is helpful. A synopsis of this could be read as follows all interference with a person’s freedom of action to trade is contrary to public policy and therefore are void. Generally, this is the case, however it has opined in some case law if the restriction is justified by reasonableness and necessity to serve public interests, such as instances involving trade secrets or confidential information the restriction may be allowed and held as binding.

Murgitroy & Company Ltd v. Purdy 2005 IEHC 159

This a much more recent decision where the Chief Justice Clarke J. outlined that a restrictive term will not be implemented unless it satisfies the limbs of the following test

  1. The restriction is reasonable between the parties
  2. The restriction is consistent with the interests of public policy

The facts of Murgitroy are as follows. A restrictive covenant in a contract of employment restricted a Patent Lawyer from working in same sector for a period of twelve months in the Republic of Ireland. Clarke CJ.  Found the restriction in relation to the geographical nature (not working in Ireland) and the length of the restriction was reasonable and justified based on the nature of the employers business. However Clarke J. found that the result of allowing the aforementioned restrictions would create another, being the restriction to approach clients who are not pre-existing clients of the employer from being engaged by the ex-employee was too restrictive. The position of this case was affirmed in the more recent example of Net Affinity v Conaghan 2012 3 I.R 67.

Stenhouse ltd v. Philips 1974 A.C 391

The covenant entered into needs to be reasonable between the parties. The holding of this case outlines that the restriction sought must be a reasonable one and cannot restrict an employee from using his skill and knowledge in future endeavors. However, the employer can restrict the employee from using assets or ‘insider knowledge’ that must be regarded as company property.

This becomes especially necessary when discussing trade secrets/ confidential information or market sensitive information. Any property or assets of the company that the employee is leaving must be protected by restrictive covenant because it is essentially, company property. Even if the employee may have contributed to the ‘company property’ the employer will still be granted protection for what is ultimately their property.

However, with regard to skill, knowledge and essentially the employee’s property, no restrictive covenant can restrict this movement. It must also be noted that if an employer is seeking to enforce a restrictive covenant simply to protect himself from mere competition, this will not be allowed.

in the Ryan Air case, Allen J. opined that that covenants are generally never reasonable unless if the competition was allowed it would take advantage of the employers trade position.

The High Court also looked at Hernandez v. Vodafone Ireland LTD 2013 IEHC 70 andTillman v Egon Zehnder Ltd from the United Kingdom Supreme Court.

High Court decision

The High Court recognized the difficulty in practice of enforcing a confidentiality clause and referred to Lord Denning in Littlewoods Organisation Limited v Harris [1978]

It is thus established that an employer can stipulate for protection against having his confidential information passed on to a rival in trade. But experience has shown that it is not satisfactory to have simply a covenant against disclosing confidential information. The reason is because it is so difficult to draw the line between information which is confidential and information which is not; and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable if limited to a short period.”

The High Court had a difficulty with whether the restraint that Ryanair sought went further than was necessary for the legitimate protection of its interests. It had no difficulty, interestingly, with the time period of 12 months.

It noted that it could, if the circumstances permitted, use the “blue pencil rule” to remove an unenforceable provision if the character of the contract was not changed as a consequence. However, the covenant in this case applies to “any business wholly or partly in competition with Ryanair for air services”.

With considerable reluctance, but without misgivings as to the applicable law, or my application of the law, I am driven to the conclusion that the clause is void and unenforceable as an unjustified restraint of trade. 195. The other provision of the restraint in this case which troubled me was the prohibition on employment in any business in competition with Ryanair “in any capacity”. It appeared to me that literally construed it would restrain Mr. Bellew from taking up employment with another airline as a pilot or air steward.

208. I find that the plaintiff has discharged the onus of proving that it had a legitimate interest in exacting a covenant from the defendant to protect the valuable sensitive and confidential commercial, operational and financial information that would come to the defendant’s knowledge in the course of his employment. For the reasons given, I find that that interest has not been shown to extend beyond those airlines in competition with the plaintiff in the low cost or low fare sector, to those airlines operating in the legacy or flag or high cost sector.

209. I find that the covenant in this case, properly construed, would prevent the defendant from taking up employment with any European airline, including the legacy carriers, and so goes beyond what the plaintiff has shown to be justified.

210. The legitimate interest of the plaintiff in restraining the defendant from taking up alternative employment is limited to roles which would risk the disclosure or use of its protectable information. I find that the restraint on employment in any capacity goes beyond that interest and has not been shown to be justifiable.

211. For the reasons given, I find that the covenant to which the defendant, for valuable consideration, freely agreed is, as a matter of law, void and unenforceable as an unjustified restraint of trade.

Conclusion

Ryanair DAC were refused their injunction because the High Court found

  1. The restraint preventing the departing employee from working “with any European airline” went beyond what was justified
  2. The restraint preventing Bellew from taking up employment “in any capacity” goes beyond the legitimate interest of Ryanair and was not justifiable.

For these reasons the High Court decided the covenant was void and unenforceable and an unjustified restraint of trade.

Takeaway for employers

  1. Employers need to understand that any restrictive covenant is drafted to reflect the specific relationship between employer and employee in any particular circumstance and a “one size fits all approach” runs the risk of being found unenforceable. If it goes too far and is too wide it is unlikely be justified as being necessary to pursue a legitimate interest.
  2. Twelve months, as a temporal restraint, is acceptable and unproblematic.
  3. Confidentiality clauses, whilst necessary and acceptable, are difficult to enforce in practice as confidential information can be used and abused without any evidence of the breach-for example in negotiating terms with competitors.

Read the full decision here: Ryan Air DAC v. Peter Bellew 2019 6239 P , Decided 23rd December 2019.

Categories
Employment Claims The Employment Contract

Was Doctor an Employee or Self Employed Contractor?

Employee or self employed?

This was the case of a medical doctor with his own practice who claimed he was an employee in respect of his work for a training provider.

This is a common issue: whether an individual was an employee or was self-employed, notwithstanding the statement in a contract that the individual was not an employee.

All employment claims will depend on the claimant being an employee. If the claimant falls at this hurdle any other claims-for example terms of employment or unfair dismissal-will not be heard.

This case involved a medical practitioner who provide training services for the respondent and brought a claim under the Terms of Employment (Information) Act, 1994 seeking a written contract of employment. He had received a contract dated April 1st 2006 which described his position as being ‘an independent contractor’ and stated that he ‘shall not be an employee’ of the respondent.

The first question that arose, therefore, was whether the complainant was an employee or an independent contractor.

The WRC Adjudication Officer noted that there is no one test to determine whether a person is engaged on a contract of employment (contract of service) or on a contractor contract (contract for services).

The AO referred to a UK case in which a number of tests were set out as follows:

1)      Does the person performing the services supply his own equipment?

2)      Can he hire his own helpers?

3)      Does he carry any financial risks and to what extent?

4)      What opportunity does he have to make a profit?

5)      To what extent does he carry the responsibility for investment/management.

He referred also to the Revenue Commissioners approach and their tests to determine employment or self-employment as follows:

1)      Is under the control of another person who directs as to how, when and here the work is to be carried out,

2)      Supplies labour only,

3)      Received a fixed wage

4)      Cannot subcontract the work

5)      Does not supply materials for the job

6)      Does not provide equipment other than small tools of the trade

7)      Is not exposed to personal financial risk in carrying out the work

8)      Works set hours or a given number of hours

The AO was satisfied that the complainant in this case, a medical doctor, satisfied the tests of the Revenue Commissioners. In short it was recognised that the complainant received a fixed and regular income, was fully integrated into the respondent’s activity, and satisfied the other tests of the Revenue Commissioners.

The respondent in this case sought to connect the fact that the complainant was also involved in other self-employed work-as a GP in his own general practice-and was paid a locum allowance to undermine the argument that he was an employee. However, the Adjudication Officer did not accept this argument and said it had ‘no merit’.

“I do not accept therefore that the payment of a locum allowance, whatever the recipient chooses to do with it, affects or alters the substance of the employment relationship between an employee and an employer which must be considered by reference to the tests set out above.”

He also found

In Hall (Inspector of Taxes v Lorimer [1994] IRLR 171 the court endorsed an explanation approved by the lower court (whose judgement was on appeal to it);

‘In order to decide whether a person carries on business on his own account it is necessary to consider many different aspects of that person’s work activity. This is not a mechanical exercise of running through items on a checklist to see whether they are present in, or absent from a given situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole. It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details.’

The Adjudication Officer had no hesitation in finding that the complainant was an employee and was entitled to be given a written statement of his terms of employment, in accordance with the Terms of Employment (Information) Act 1994.

However, the Adjudication Officer did not consider it ‘just and reasonable’ to make any order for compensation retrospectively as the ‘current respondent whose breach of the Act arises for the first time as a consequence of the finding in this case’. He did order that a statement of terms of employment be given to the complainant.

This decision was issued on 18th December 2019 and you can read the whole decision here. It is a useful reminder of the tests which will be applied to determine the issue of employee versus independent contractor.

Categories
The Employment Contract

Important Lessons from High Court Fixed Term Contract Case

A recent High Court case involving a teacher and a school board of management in an employment dispute is worth looking at. The case is The Board of Management of Malahide Community School v Conaty [2019] IEHC 486 and you can read the full decision of the High Court here.

The High Court decided that the fixed term contract that the school gave to Ms Conaty was void because it had the effect of depriving her or protections she had already acquired under statute, particularly the Unfair Dismissals Act 1977.

The focus of this piece, however, is not Ms Conaty’s case per se but what wider lessons we can learn from the decision.

Protection for employee waiving her employment rights

Section 2(2) (b) of the Unfair Dismissals Act 1977 is described in the act as an exclusion. The High Court has decided that it is, in fact, a waiver.
Section 2(2) (b) states,

(b) dismissal where the employment was under a contract of employment for a fixed term or for a specified purpose (being a purpose of such a kind that the duration of the contract was limited but was, at the time of its making, incapable of precise ascertainment) and the dismissal consisted only of the expiry of the term without its being renewed under the said contract or the cesser of the purpose and the contract is in writing, was signed by or on behalf of the employer and by the employee and provides that this Act shall not apply to a dismissal consisting only of the expiry or cesser aforesaid.

The Judge in this case held that if the employee is to sign a contract containing this waiver their consent needs to be given at the commencement of the employment and the consent must be informed.

The Court referred to section 13 of the Unfair Dismissals Act 1977 which states

 13.—A provision in an agreement (whether a contract of employment or not and whether made before or after the commencement of this Act) shall be void in so far as it purports to exclude or limit the application of, or is inconsistent with, any provision of this Act.

The High Court recognised that Freedom of contract is severely restricted by section 13 of the Act. Any provision in an agreement which purports to exclude or limit the application of, or is inconsistent with, any provision of the Act is void.

But how is this restriction on an employee ever contracting out of their rights allowed in, for example, settlement agreements?

The High Court recognised that However, there is case law which suggests that—at least in the context of settlement agreements—an employee may be entitled to waive their rights on the basis of informed consent.

Therefore, if an employee is to enter into an agreement, whether a contract of employment or settlement agreement, his/her informed consent must be obtained in advance, not retrospectively. This is an important lesson for employers to take from this case and it has wider application to employment settlement agreements.

Fixed term contract

For a contract to be classified as a ‘fixed term contract’ as envisaged by section 2(2)(b) the term of the contract must be fixed-that is, the termination date must be ascertainable at the outset.

And not reliant on variables or contingencies such as teaching hours continuing to be available and/or demand for the subjects continuing.

In this case the contract contained this clause,

“The temporary contract will commence on 30 August 2015* 8th October 2015 and will terminate of 31 August 2016 subject to satisfactory service during the probationary period. The temporary contract may be renewed for a continued period in the event that the allocated hours as specified above continue to be available and the demand for these subjects continues.”

The Judge decided that the contingencies set out in this clause meant that it was not a fixed term contract as the termination date was not ascertainable.

Conclusion

The lessons to be extracted from this case are important and of potentially wider application, especially regarding an signing a waiver of their rights and the possibility of employees claiming that they are not, in fact, on fixed term contracts by reason of the contingencies in their contract of employment.

Read the full decision in

The Board of Management of Malahide Community School v Conaty
[2019] IEHC 486

Categories
The Employment Contract

Counter-offers in the Formation of Binding Contracts-What You Should Know

counter-offer

I am occasionally contacted by employees who have attempted to negotiate a contract of employment but difficulties have arisen and they want to sue for breach of contract.

The first thing that needs to be addressed, however, is whether a binding, enforceable contract has been entered into between the employee and the employer with whom he is negotiating.

It is not always crystal clear.

Let’s take a look at how binding contracts come into existence, shall we?

In order to form a binding contract you need three things:

  1. Agreement
  2. Consideration
  3. Intention to form legal relations

In assessing whether agreement has been reached between the parties the role of counter-offers is an important one..

Offer

For agreement to be reached an offer must be made and the offer should be clear and unambiguous as to the terms on which the offeror is willing to contract.

If statements are made in negotiations but are not intended to conclude in a contract these statements are called ‘an invitation to treat’.

Acceptance

Acceptance is a final and unequivocal expression of agreement to the terms offered.If the offeree intentds acceptance of the offer he must communicate this acceptance to the offeror.

Counter-offers

Counter-offers can muddy the waters, however, because if the response by the offeree is not a clear and unconditional acceptance of the offer the response may be considered a counter-offer which in turn may be accepted or ignored by the offeror.

If an offer is met with a counter-offer this has the effect of rejecting the original offer. And if the counter-offer is refused the initial offer cannot now be accepted.

Conclusion

You need to be careful in any negotiations you enter into, whether in negotiating a contract of employment or any other contract, and be clear as to whether you are making a counter-offer or merely seeking further information or clarification about the terms of the offer.

You can learn more about contract law in Ireland here.

Categories
The Employment Contract

Probation in the Irish Workplace-the Essentials

Most employees are put ‘on probation’ in a new employment before their position is confirmed.

Most employment contracts will state that the position will only be confirmed on satisfactory completion of the probationary period.

A typical clause in an employment contract will read ‘Subject to satisfactory completion of the probationary period specified below, you will be employed on a full time permanent basis until your employment is terminated by either party giving to the other the notice period specified in the notice clause’, or words to that effect.

Employee suitability

During the probationary period the employee’s suitability for the role will be assessed and it also allows the employee become integrated into the organisation and learn the ethos of the employer’s business.

The duration of a probationary period can range from 3 months to 11 months but should not exceed 12 months, regardless.

Also, even if a probationary period is for 6 months there will almost certainly be a provision in the contract for the extension of the period up to the maximum 11/12 months.

Review meetings

Regular review meetings should be held during probation and feedback given to the employee as to how she is doing with a final meeting just before the end of the probationary period. If the employee is underperforming, she should be advised of this as soon as possible.

At the end of the probationary period the employee should be told whether they have passed, failed, or the period is to be extended.

If the final decision is termination the likelihood is the contract will provide for only 1 week’s notice from the employer during the probation period. The employee may have the right to appeal this decision but the full panoply of policies and procedures-such as disciplinary and/or grievance and/or dignity at work-will not be open to the probationary employee.

However, there will be some method by which a formal grievance or complaint may be made by the employee and there will be a disciplinary procedure, albeit a truncated or amended version of the full procedure.

Probation dismissal

As an employee who is dismissed on or at the end of probation he will not have the necessary 12 months’ service to avail of the reliefs provided by the Unfair Dismissals Act 1977.

There are some limited remedies open to the employee, however, which do not require 12 months’ service. Such claims would be founded on a discriminatory ground or perhaps for having made a protected disclosure.

Further reading

Options open to probationary employees

Advice for employees on probation