The Supreme Court has recently decided on the scope of what is known as ‘Wrotham Park’ damages for breaching a restrictive covenant.

Morris-Garner and another v One Step (Support) Ltd [2018] UKSC 20

Background

‘Wrotham Park’ damages is a category of damages that has historically been sought by an ex-employer against an ex-employee and their new employer where the ex-employee has acted in breach of a post-termination restriction in the employment contract.

It can often be hard to calculate the actual loss that this type of conduct by an ex-employee has caused (poaching client relationships being a good example of a loss that is difficult to easily quantify). So lawyers increasingly used an alternative approach, which was to look at the value of the restriction itself to the ex-employer. ‘Wrotham Park’ was a 1974 case that dealt with restrictive covenants that affected land, and simply put, it ruled that where a covenant has been breached but the loss that causes is hard to quantify, the claimant can instead ask to be awarded the imaginary sum that they would have accepted to be bought out of the restriction. So ‘Wrotham Park’ damages traditionally required the parties to imagine how much the ex-employee would have to pay to get out of the restriction, and this was the amount of damages that the court could award (the court had a discretion whether or not to approach damages in this way).

Supreme Court decision

In Morris-Garner and another v One Step (Support) Ltd [2018] UKSC 20, a case concerning restrictive covenants entered into on the sale of a business, the Supreme Court has renamed these damages as ‘negotiating damages’ and has considerably restricted their scope. In the majority judgment, the court said that negotiating damages are not discretionary, and cannot be used to avoid proving loss in the usual way. Negotiating damages would, therefore, not normally be available for breaches of non-compete clauses or non-solicitation clauses. In these cases the claimant must prove loss as normal or fail in the damages claim.

Consequences

This decision is an important consideration for employers when they are dealing with ex-employees acting in breach of post-termination restrictions. The damages claim is often a significant leverage that the employer has against the ex-employee and their new employer. This decision reduces that leverage considerably.