• Employer Entitled to Withdraw Conditional Benefit on Breach of Condition
  • December 27, 2012 | Author: Alex Denny
  • Law Firm: Faegre Baker Daniels - London Office
  • The Queen's Bench Division has held in Imam-Sadeque v Bluebay Asset Management [2012] EWHC 3511 (QB) that an employer was entitled to withhold a conditional benefit under a compromise agreement when the employee breached the relevant condition.

    Mr Imam-Sadeque resigned from his position as an investment banker for Bluebay.  He was a member of a share option scheme under which he would ordinarily have been considered a "bad leaver".  However, he signed a compromise agreement under which it was agreed he would be deemed a "good leaver" (worth £1.7 million) on the condition that he complied with the terms and conditions of his employment contract, which included covenants not to compete with Bluebay and not to solicit its employees.  Mr Imam-Sadeque then began working for a competitor and also recruited an employee of Bluebay, in breach of his covenants.  Bluebay withdrew the benefit of the good leaver provisions, claiming that Mr Imam-Sadeque's contract and compromise agreement had been breached. 

    Mr Imam-Sadeque argued that he had not breached his employment contract and that the clause on which Bluebay relied was a penalty clause, and therefore unenforceable in any event. The Queen's Bench Division disagreed and held that not only was Mr Imam-Sadeque in breach of his contract, but the clause in the compromise agreement was not a penalty clause.  The compromise agreement gave Mr Imam-Sadeque benefits which he would not otherwise have had and these benefits were conditional.  The condition was not fulfilled and so the employee was not entitled to the benefit.

    This seems a logical and fair outcome, and it is reassuring to employers who agree to make additional payments under a compromise agreement in return for the employee's promise to comply with certain covenants and undertakings.  If employers are concerned that an employee may not comply with his or her post-termination covenants, it may be sensible to defer payment of part of any compensatory payment until after the covenants expire, to act as a further incentive for compliance.