Consideration for Covenants

May 11, 2015

The recent UK High Court decision in Re-use Collections Limited v Sendall & May Glass Recycling Ltd, highlights to employers that new restrictive covenants will not be enforceable against employees unless substantial consideration is provided to the employee in return for agreeing to the new covenants. For the employee just to continue working will not be sufficient for the individual to be bound by the new covenants.

Employers are well advised regularly to review the restrictive covenants in their employees’ employment contracts to ensure that they remain appropriately drafted and enforceable. This may be particularly appropriate in relation to businesses which employers acquire. Any contract review exercise needs to be carefully managed to ensure that employees validly agree to any changes proposed. One trap for the unwary can be where new restrictive covenants are introduced in re-issued contracts and without any specific payment or other benefit being offered in return. Where covenants are not introduced as part of a revised package involving new benefits such as a pay rise, employers have often argued or assumed that continued employment provides the benefit which constitutes the "consideration" needed for the contract amendment of the introduction of new covenants to be valid and effective. Re-use Collections Limited v Sendall & May Glass Recycling Ltd demonstrates the dangers for employers in this area.

Read "Consideration for Covenants".