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taratill
taratill, Solicitor
Category: Employment Law
Satisfied Customers: 6339
Experience:  15 years experience of advising on employment law matters
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Hi, I have a UK LTD Company and I work for a US based Company

Resolved Question:

Hi,

I have a UK LTD Company and I work for a US based Company at Director level in the UK with a Consultant Agreement. They terminated this contract which contains Restrictive Covenants (no compete - 6 months) and brought in another Director level Consultant and offered me another 3 month Contract with a 6 month non compete...

Prior to the termination of the original contract my commission percentage was reduced on sales by the Managing Director based in the US. My original contract was clear - I would receive 3% on ALL gross sales. Indeed, in regards XXXXX XXXXX particular Customer I received 3% comms for the previous few months.

The new Director and another Consultant employed after my termination were offered 5% Comms. I believe this was part of a larger plan of Constructive Dismissal by this Managing Director.

1) I believe the Company is in breach of Contract in regards XXXXX XXXXX removal of agreed comms payments.
2) I am still working for them but do not want to sign this short term contract in case it would be viewed that I had no case for breach on the original
3) I feel a 6 month non compete on a 3 month contract is unacceptable.

My questions are:

a) Are they in breach and would this make the restrictive covenants unenforceable
b) If they aren't in breach are the restrictive covenants (non-competes) enforceable as I am a LTD Company and would this not be restriction of trade?
c) If a Court did uphold the 6 month covenant period wouldn't they have to pay me and if they did not would the Court uphold this restriction on me making a living?
d) Would breach due to Constructive Dismissal apply in a Consultancy Agreement?

Thanks

Phil Sullivan
Submitted: 3 years ago.
Category: Employment Law
Expert:  taratill replied 3 years ago.

taratill :

Hello my name is XXXXX XXXXX I am happy to help you today. By way of background when did you start working for the US company?

Customer:

Hi Jenny,

Customer:

I started working for the US company 18 months ago. They formed a UK Ltd company and wanted me to run it.

taratill :

So the position is that you are an employee of this UK limited company and have been for 18 months?

Customer:

I invoice them each month - My title is Director UK and Europe nut I am not a Director of the Company.

taratill :

Do you invoice them as a limited company or as an individual?

Customer:

I have my own Company. Although it could be said under IR35 (HMRC) that I am effectively an Employee...

Customer:

Invoice as a LTD Company

taratill :

Ok first I need to establish whether I think you would be classed as an employee for employment law purposes.

taratill :

Do you work solely for the business or are you able to send someone else in?

Customer:

Solely.

taratill :

Are you paid holiday and subject the company's disciplinary and grievance proceures?

Customer:

they state in the contract that i can conduct other business but solely at their discretion and it must not compete

Customer:

paid holiday - yes

taratill :

Ok thanks, XXXXX XXXXX be paid SSP if you were off sick?

Customer:

I was sent a copy of their Employee Handbook - yes

Customer:

I haven't tested the SSP - so can only assume they would

taratill :

Ok thanks, XXXXX XXXXX be classed as an employee for employment law purposes. Give me some time to prepared a full response. I will get back to you within the next hour or two. You will receive an email when it is ready.

Customer:

Thanks you so much - my big question is really - moving forward could they hope to get the non compete enforced against me as a ltd Company given the strict laws on restriction of trade in the UK?

taratill :

In regards XXXXX XXXXX is the US company likely to suffer a financial loss if you were to breach the terms of the clause?

Customer:

They only have one Customer in the UK at the moment. The answer to that is No.

Customer:

I have also been in the Scaffolding Industry for 37 years and that is my core business - so preventing me working in that business would stop me making a living.

Customer:

they have been clever in not making the non compete too broad or the period not over a year - which I understand is rarely enforced.

taratill :

Ok well then whether the clause is enforceable or not is academic really as you can only sue for damages if there is a breach of contract. Damages only occur if a financial loss is suffered as a result of the breach. A key issue for whether a clause is enforceable or not is whether it is more widely drafted than necessary to protect a legitimate business interest. It seems that it is if they would not suffer a loss if you were to act in breach. If they only have one client it would be acceptable for them to ask you not to deal with that client. It is not acceptable for them to ask you not to work in your normal line of work for a period of 6 months, especially if they would not suffer a loss if you do.

taratill :

As regards XXXXX XXXXX aspects of your question. You could potentially claim constructive dismissal as an employee BUT you would nee 2 years service to raise a claim.

Customer:

Would a court grant them an injunction based on the contract terms or would the Court ask them to prove the above before granting an injunction?

taratill :

I do not think that they are in breach of their agreement by paying you 3 % if that was what is in your agreement. The fact that they pay others more than that does not make them in breach.

taratill :

It is highly unlikely a) that they would seek an injunction as it would cost tens of thousands of pounds to do so and they would not suffer a loss so it would not be economic to do so or b) that it woudl be granted in the circumstances as they can not show the risk of real harm.

Customer:

but if they remove that 3% commission whilst the original contract is in force ?

taratill :

that would be a breach of contract. They fact that they are in breach of contract would make it difficult for them to rely on the covenants. But as I said it is unlikely that they would be deemed to be enforceable anyway on general legal principals.

Customer:

now that is music to my ears :-)

taratill :

I do think that you have no cause for concern here. So long as you do not actively poach their client they are unlikely to take action and if they do you can argue that the clause is unenforceable.

taratill :

If you have any further questions please do ask. Please remember to rate my answer as I am not otherwise credited for my time.

Customer:

Your advice is VERY much appreciated. I look forward to your formal response. I have not used this service before - so am not sure if you include your firm's contact info - but please do - I may need you to respond to the Americans if I do hear from them moving forward !!

Customer:

my email [email protected] Philp Sullivan

Customer:

Philip Sullivan

taratill :

Hi please could you treat this as a formal response as I have now dealt with all aspects of your question. Unfortunately I am not able to give my firm's details on the site. If you have any further queries please do ask.

Customer:

Ok - thank you. Have a nice weekend - especially if you aren't boating....

taratill :

No I'm luckily away from the floods. You too. Do come back to me in the future if you need me to.

Customer:

thanks

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