Personnel Hygiene Services Ltd v Mitchell [2009] ETCA Civ 1047

Covenants in a Compromise Agreement which contained an entire agreement clause do not replace those  

in a share purchase agreement under which the employee had sold his shares.

Mr Mitchell was employed by Rent a Crate Ltd under a service agreement which contained restrictive covenants. He sold shares in his employer’s holding company to PHS under a share purchase agreement. That agreement also contained restrictive covenants on Mr Mitchell. Six weeks after the sale his employment was terminated and he entered into a Compromise Agreement with his employer and PHS which contained restrictive covenants that were different to both those in his contract and the SPA. The Compromise also contained an entire agreement clause. PHS applied for an interim injunction to enforce covenants in the SPA. It was held that the Compromise Agreement was clearly intended only to replace the covenants in the service agreement.

Key point: When drafting and negotiating Compromise Agreements employers should ensure that contemporaneous or existing shareholder agreements or share purchase agreements are also considered to ensure that any restrictions on the departing employee are not adversely affected.

Compromise Agreements – breach of confidentiality clause

Dunedin Canmore Housing Association v Donaldson 2009 UKEAT 0014/09

Ms Donaldson entered into a Compromise Agreement with her employer following her dismissal. This provided for the payment of certain sums of money and bound her to keep the fact of the agreement and its terms strictly confidential.

Dunedin withheld payment from her on learning that she had breached the confidentiality clause. The Tribunal found that Dunedin were in the circumstances entitled to withhold payment. At a second hearing Dunedin sought an award of expenses as the original Tribunal had earlier refused their application for expenses on the basis that Ms Donaldson had not acted unreasonably in giving an explanation as to her disclosures although these assertions were found to be false. The EAT ordered Ms Donaldson to pay Dundedin’s legal costs. This case follows the earlier judgment in Daleside Nursing Home Ltd v Mathew which held that it was perverse for a Tribunal not to award costs where the central allegation of racial abuse was a lie.

Key point: Although costs awards are rarely made, where there is a gross abuse of the process employers should not be shy about seeking costs.