If an employee leaves employment and begins work for a competitor in breach of restrictive covenants there may be tactical reasons for the ex-employer to bring a claim against the new employer, arguing that it induced the employee to breach his contract. Allen t/a David Allen Chartered Accountants v Dodd & Co Ltd is an example of such a case – and illustrates steps a new employer could take to minimise the risk of liability.
Mr Pollock resigned from his employment at David Allen and immediately went to work for Dodd & Co. Although he had restrictive covenants in his contract of employment that would have prevented this, Dodd & Co had taken legal advice that said it was more likely than not that the covenants were unenforceable. As matters transpired, the High Court found that the covenants were enforceable and that Mr Pollock had breached them. The issue for the Court of Appeal was whether Dodd & Co was liable for inducing the breach of contract.
The Court of Appeal agreed with the High Court that it was not. To be liable for inducing a breach of contract, a party has to have knowledge that it is inducing a breach or turn a blind eye to whether there is a breach. However, an honest belief that a particular set of events will not involve a breach of contract is inconsistent with an intent to induce a breach of contract. In this case Dodd & Co's legal advice indicated that it was more probable than not that there would not be a breach. Dodd & Co was entitled to act on that advice without exposing itself to liability. Provided that the defendant honestly believes that the act in question will not amount to a breach of contract, it is not liable in tort, even if the belief is mistaken.