No more nominal payments as consideration?

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14 Jun 2016

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The law of contract provides that whenever a change is made to a contract of employment the variation will only be valid if something of value (known as “consideration”) passes from each party to the other. As a result, one often sees a nominal payment (typically of £100 or so) being made in return for the employee agreeing to new post-termination restrictions. However, the recent case of Pickwell & Nicholls v Pro Cam CP Ltd suggests that, in the future, such variations may be upheld even in the absence of such a payment. The case concerned two trainee employees who started work without written contracts. When written contracts were presented for signature, some months after each employee commenced employment, they included restrictions on the employees’ ability to deal with Pro Cam’s customers following the termination of their employment. On the subsequent termination of their employment, Pickwell and Nicholls argued that the restrictions were not valid, in part because their introduction had not been supported by consideration. However, the Court found that if the Claimants had not agreed to the restrictions they would have been denied access to clients/confidential information and might even have been dismissed. On this basis, there was consideration – the thing of value passing to the employees was that access and their continuing employment. Andrew Willis, manager of Croner’s Litigation & Commercial Legal teams, explains: “Our clients understandably want to do as much as they can to protect their legitimate business interests. We therefore provide them with standard contracts – including restrictions and obligations to protect their client relationships, employees and products where appropriate – which help them to do this. “This case is helpful in that, where old contracts need to be varied to provide such protection, it suggests an additional means by which the variation may be upheld. However, we would always recommend that clients take advice when making such changes and include an express statement that the employee is being given access to clients and information – and perhaps being retained as an employee – on the basis of, and as consideration for, the contractual variation being agreed to and signed. “With regard to any contractual amendment; switching to a secure, online system can be beneficial, as it enables the employer to electronically distribute documentation to its employees, no matter where they are based, and monitor who has read/agreed to the changes. It also makes it easier to store and find the latest versions.” For more information on how Croner can help with contracts and handbooks, please call 0800 032 4088.

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