Silverwood v Willow Oak Developments Limited (t/a Windsor Recruitment)
EAT website 20 October 2005
Willow, a staff recruitment company, had suffered from competitors poaching its staff, so the company insisted that its employees should agree to tighter restrictive covenants. Several employees – who refused to sign new contracts containing the covenants – were dismissed, and claimed unfair dismissal.
The tribunal first considered whether there was a fair reason in law for the dismissals under the category of ‘some other substantial reason’. It found that tighter restrictive covenants were necessary if Willow was to prevent the poaching. However, these covenants were found to be unreasonably wide, and therefore unenforceable. Consequently, the tribunal held that there was not ‘some other substantial reason’ to justify these dismissals, and indicated that in any event, it would have found the dismissals to have been procedurally unfair due to the lack of consultation.
The tribunal decision was affirmed but on different grounds. The Employment Appeal Tribunal (EAT) held that the dismissals could have been made on the grounds of ‘some other substantial reason’. If an employer can show that the reason for dismissal (in this case the employees refusing to sign the new contracts) could amount to ‘some other substantial reason’ (ie where they were to prevent the poaching), then there will be a potentially fair reason for dismissal, unless the employer acts capriciously, or uses it as an excuse to dismiss.
The EAT said that the tribunal should then assess whether the dismissal was in fact fair. The reasonableness of insisting on the new terms should only be considered at this stage, and that will include an assessment of whether the covenants were reasonable.
The EAT considered that the tribunal would have held that the dismissals were procedurally unfair because of the lack of consultation. Therefore, the tribunal’s conclusion of unfair dismissal was upheld.
This case shows that a dismissal for refusing to accept restrictive covenants is capable of being ‘some other substantial reason’ for dismissal, unless the covenants are ‘in fact a cover or a ruse to get rid of an employee’. Whether or not the covenants are reasonable is only relevant in deciding fairness, not when deciding the reason for dismissal.