Professional Documents
Culture Documents
RECENT CASES
NOTE
A senior executive gave notice to terminate his employment and was placed on
garden leave. He wished to join his new employer sooner than the end of his
leave. He argued that a takeover of his employer allowed him to use the pro-
visions of the Transfer of Undertakings (Protection of Employment) (TUPE)
Regulations 20061 enabling objection to the transfer of his employment in order
to release himself early from his employment contract. ICAP Management
Services Limited v (1) Berry (2) BGC Services (Holdings) LLP2 is an intriguing
case which involves an examination of the concept of the employer, the defin-
ition of a TUPE transfer, the scope of an employee’s right to object to a TUPE
transfer, and the principles around the enforcement of garden leave provisions
in employment contracts.
1. BACKGROUND
SI 2006/246.
1
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3
[2017] EWHC 638 (QB).
4
Reg 3(1)(a) of TUPE provides that there is a relevant transfer where there is ‘a transfer of
an undertaking, business or part of an undertaking or business situated immediately before
the transfer in the United Kingdom to another person where there is a transfer of an eco-
nomic entity which retains its identity’ (emphasis added). By Reg 3(2) an ‘economic entity’ is
‘an organised grouping of resources which has the objective of pursuing an economic activity,
whether or not that activity is central or ancillary’. It was not contended this was a ‘service pro-
vision change’ TUPE transfer under Reg 3(1)(b) of TUPE.
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As David Cabrelli has described it: “The employee’s freedom of activity-or to put it
another way, the employee’s freedom to contract with whomsoever he/she chooses-
can be characterised as a sacred doctrine which lies at the foundation of the liberal
philosophy underpinning the common law”.9
Automatic transfer of the employment relationship under the ARD outflanks the
doctrine of unassignable employment rights. Does that imply that the ARD is to
be interpreted as meaning that the employee has no right to object to his employ-
ment contract being transferred to a transferee? This does not necessarily follow,
5
Council Directive 2001/23/EC on the approximation of the laws of the Member States relat-
ing to the safeguarding of employees’ rights in the event of transfers of undertakings, busi-
nesses or parts of undertakings or businesses.
6
Rotsart de Hertaing v J Benoidt SA [1997] 1CMLR 329; Berg & Busschers v Besselsen
C-145/87 [1990] ICR 396; d’Urso v Ercole Marelli Elettromeccanica Generale SpA C-362/89
[1992] IRLR 136. For joint and several liability, see the option afforded to Member States by
Art 3(2) of the ARD. The only examples included in the TUPE Regulations are Reg 15(9)
(joint and several liability for a transferor’s failure to inform and consult under Reg 13) and
Reg 17(2) (joint and several liability for personal injury compensation where the transferor is
exempted from holding Employer’s Compulsory Liability insurance).
7
[1940] AC 1014.
8
At 1020. See also the equally trenchant opinion of Viscount Simon LC at 1019.
9
D. Cabrelli, ‘The Effect of Termination upon Post-Termination Obligations’ in M. Freedland
(Gen ed), The Contract of Employment (Oxford: OUP, 2016), 571.
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as the jurisprudence of the European Court has explained. A transfer under the
ARD takes place independently of the wishes of the parties to the employment
contract, and in that respect, the consent of the employee is not necessary for the
transfer.10 That, however, should not stand in the way of an employee deciding of his/
her own accord not to continue the employment contract with a transferee. As the
Court of Justice in Europièces v Wilfried Sanders and Automotive Industries Holding
Company SA11 stated: ‘the protection which the Directive is intended to guarantee
is redundant where the person concerned decides of his own accord not to continue
the employment relationship with the new employer after the transfer’. Using more
modern language than in Nokes one must also appreciate ‘fundamental’ rights of
workers, such as the right to work, and ‘the rights of workers to freely chose whom
they wish to work for’.12
The employee’s ability to object and the consequences of that objection were con-
firmed in the Court’s decision in Grigorios Katsikas v Angelos Konstantinidis.13 This
case involved the sale by Mr Konstantinidis of a Greek restaurant (the ‘Fischtaverne’)
in Germany. Mr Katsikas, the cook, refused to work for the new owner, Mr Mitossis.
His aim was to persuade Mr Konstantinidis to employ him at another of his restau-
rants. Instead he was dismissed by Konstantinidis, ostensibly in the name of Mitossis.
Katsikas sued Konstantinidis for accrued monies due and any compensation arising
on termination of employment. Konstantinidis argued that he was no longer the
employer.14 Article 613a of the German Civil Code (as interpreted by the Federal
Labour Court) provides that “where a part of an undertaking is transferred by a
legal transaction to another owner, the objection of the person employed in that
part of the undertaking prevents the transfer to the transferee of his employment
relationship and the employment relationship with the transferor continues”. The
issues referred by the Arbeitsgericht, Hamburg, to the Court of Justice for a ruling
were whether an employee may object to a transfer and whether if, in providing in
that situation, that the employment relationship continues with the transferor, the
10
The mandatory effect of the ARD and that employees are not permitted to waive right
given to them is explained by the Court of Justice in Foreningen af Arbejdsledere i Danmark v
Daddy’s Dance Hall C-132/92 [1998] ECR 739.
11
C-399/96 [2001] CMLR 25.
12
See A.-C. Hartzén, N. Hös, F.A. LeComte, C. Marzo, B. Mestre and H. Olbruch, ‘The Rights
of the Employee to Refuse to be Transferred. A Comparative and Theoretical Analysis’ EUI
Working Paper LAW 2008/20.
13
Case C-132/91 [1993] IRLR 179.
In a joined case, Skreb and Schroll v PCO Stauereibetrieb Paetz & Co. Nachfolger GmbH
14
C-138/91, C-139–91 Skreb and Schroll, who were dockworkers employed by Paetz, objected
to the transfer of their employment when the stevedoring business of Paetz was transferred
to Carl Teidemann GmbH & Co. As in Katsikas, the aim of the employees’ objection was to
remain employed by Paetz. But Paetz declined to allow this, and argued the objection to the
transfer of their employment contracts was contrary to European law.
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Paragraphs (1) and (2) of regulation 4 [transfer of employment] shall not operate to transfer
the contract of employment and the rights, powers, duties and liabilities under or in connec-
tion with it of an employee who informs the transferor or the transferee that he objects to
becoming employed by the transferee.
However, the fate of the employment contract where an employee makes this objec-
tion is determined by reg 4(8), which states as follows:
Subject to paragraph (9) and (11) where an employee so objects, the relevant transfer shall
operate to terminate the contract of employment with the transferor but he shall not be
treated for any purpose as having been dismissed by the transferor.
At the time of the case, this was under Art 7 of Directive 77/187/EC (now Art 8 of the
15
Directive 2001/23).
It was therefore not necessary to determine whether recognition of his employee’s right to
16
object to the transfer of his contract of employment constituted a provision which was “more
favourable to employees” within the meaning of (the then) article 7 of the ARD.
17
Hartzén et al. n 12 above. According to this helpful report Germany, Sweden and the
UK have interpreted Katsikas as calling for an express right of the employee to refuse to
transfer, whereas other Member States such as Portugal and Hungary have understood the
decision as giving Member States a choice whether or not to implement a worker’s right to
refuse to be transferred in national law (and how to detail the legal consequences of the
exercise of that right).
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fundamental rights recognised in the Judgment’.18 The employee by this route pre-
vents the transfer of the employment contract to the transferee. But the transferor
is absolved from continuing the employee’s employment by regulation 4(7), in
that the employment contract is terminated and the employee is treated as not
having been dismissed. Thereby the employee cannot seek the continuance of
his employment contract with the transferor (and ask, for example, for redeploy-
ment) or claim a redundancy payment from the transferor (for which a dismissal
would be required). In this respect, UK law is in sharp contrast to German law,
where under para 613(a) of the German Civil Code, the employment continues
with the transferor for these purposes. Commentators have expressed regret
about the failure of the Court of Justice to attempt to harmonise national provi-
sions in this regard.19
In short, in UK law, if the employee exercises the right to object under Reg 4(8)
of TUPE, he/she is left stranded high and dry, with no claim against anyone. So why
would an employee wish to exercise such a valueless right? ICAP v Berry provides
an example, however, of the rare occasion of when someone might choose the ‘right’
of objection to his advantage. Mr Berry sought to object to transfer of his employ-
ment and bring about its automatic termination in order to seek to release him from
his garden leave. This is possibly an unintended consequence of the ‘right’ contained
in Reg 4(7) of TUPE, and certainly an opportunistic use of it. But the argument was
successful in New ISG Limited v Vernon & others20 where employees were able to
object to the transfer of their employment to a transferee, which enabled them imme-
diately to join a competitor employer. In an injunction application brought by the
purchasing company to enforce restrictive covenants in the employees’ employment
contracts the High Court rejected the new company’s claim. The effect of the objec-
tion was to stop the transfer of the employment contract to the new employer and
the new employer had no covenant to enforce. However, this proposition depends
EU Employment Law (Oxford: OUP, 4th ed, 2012), 12. Although the effect of Reg 4(8)
18
can be overcome if the employee is entitled to treat the employment contract as terminated
where the transfer involves or would involve a substantial change in working conditions to
the employee’s material detriment (TUPE Reg 4(9)). See also ARD, Art 4(2) and Merckx and
Neuhuys v Ford Motors Belgium SA Joined cases C-171/94, C-172/94 [1996] IRLR 61, noted by
P. Davies: ‘Opting out of Transfers’ (1996) 25 ILJ 247.
See S. Laulom: ‘The European Court of Justice in the Dialogue on Transfer of Undertakings:
19
A Fallible Interlocutor’ in S. Sciarra (ed), Labour Law in the Courts: National Judges and
the European Court of Justice, (Oxford: Hart Publishing, 2008); F. Valdés dal-Ré: ‘Transfer
of Undertakings: An Experience of Clashes and Harmonies between Community Law and
National Legal Systems’ in Sciarra, op cit. But as ACL Davies has observed, the ARD ‘is a
measure of partial harmonisation and was introduced in the content of wide variations in exist-
ing practices as between the Member States’: EU Employment Law (Cheltenham: Edward
Elgar, 2012), 228.
20
[2008] IRLR 115. See J. McMullen: ‘The “Right” to Object to Transfer of Employment
under TUPE’ (2008) 37 ILJ 169.
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upon whether there is a transfer of an undertaking to object to. In this regard, the
Court in ICAP needed to determine whether Mr Berry was employed by a trans-
feror which had transferred its business to a transferee.
Mr Berry and BGC contended that Mr Berry was employed by ICAP plc, and that
ICAP plc, as transferor, transferred its business to TP ICAP plc. But Mr Berry’s
contract was with IMSL. It is true that in Albron Catering BV v FNV Bondgenoten21
the Court of Justice accepted an argument that an employee employed by a services
company (the ‘contractual employer’) could be employed by an operating com-
pany (the ‘non-contractual employer’) within the same group, notwithstanding they
were not linked to the operating company by an employment contract. This is pro-
vided that those employees ‘are assigned on a permanent basis’ to the transferor22.
Garnham J rejected the application of that case to the present circumstances. The
interpretation only applied, he said (applying the condition set out by the Court of
Justice in Albron), if the assignment is permanent. Mr Berry may have been assigned
to IGBB or Global E-commerce (which were not legal entities) but not ICAP plc;
and the employment contract provided that Mr Berry was employed by IMSL and
not any group company.23 Nor could the wording in TUPE, defining employee as
‘any individual who works for another person whether under a contract of service
or apprenticeship or otherwise…’24 assist. Garnham J rejected the argument that
Mr Berry was working for ICAP plc under a contract of service or otherwise. For
Mr Berry to say that he was working ‘for’ ICAP plc was ‘advancing an artificial con-
struct’ on the facts of the present case.
The arguments of counsel for Mr Berry and BGC had brought the proceedings
tantalisingly close to a broader discussion of ‘the concept of the employer’ and
the ‘group entity’ theory. It may be that there are strong reasons for departing, as
Jeremias Prassl argues, from a ‘traditional unitary vision of the employer as a sin-
gular entity’.25 Generally speaking however, the Courts tend to respect corporate
personality and refuse to pierce the veil in the context of TUPE transfers,26 echoing
The TUPE Regulations do not expressly provide for the concept of a ‘non-contractual’
22
employer, but it is suggested that the Regulations can be purposively interpreted to accommo-
date the Albron decision. See the discussion in J. McMullen, Business Transfers and Employee
Rights LexisNexis, loose-leaf Chapter 6, [66]. See also the discussion in J. Prassl, The Concept
of the Employer (Oxford: OUP, 2015) at 102–103.
23
And clause 15.1 of the agreement contained an ‘entire agreement’ clause.
24
Regulation 2(1).
25
Prassl, n 22 above.
26
See Brookes v Borough Care Services Limited and CLS Care Services [1998] ICR 1198.
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That brings us back to the technical nature of the takeover. On paper, at least, there
was a share sale to Tullett Prebon plc, with the identity of the IGBHL subsidiary
companies unchanged. Both the ARD and TUPE require a change of employer.28
A share sale does not involve a change of employer. In Brookes v Borough Care
Services & CLS Care Services Limited29 the EAT considered:
The Regulations and the Directive refer quite specifically to the change of employer and to
a transfer (sic) and transferee being any natural or legal person. They could have addressed,
but did not, the circumstances in which there was no transfer from a legal person to another
legal person, but the shareholding membership of the legal person changed though its sep-
arate legal identity remained untouched.
In Millam v Print Factory (London) 1991 Limited,30 however, it was held, on the facts
of the case, that, after a share sale, there had been a subsequent de facto TUPE trans-
fer. In Millam, a printing company (A) was sold to another printing company (B) by
way of a share sale agreement. After the takeover, B took over payment of employ-
ees’ wages, and it also managed A’s pension scheme. B also began to handle A’s
sales function. There were also combined board meetings of the two companies. On
the facts, B was controlling A’s activities, notwithstanding they remained separately
registered as individual limited companies. Both A and B went into liquidation and
IBM United Kingdom Holdings Limited v Dalgleish [2017] EWCA Civ 1212. See the judg-
27
ment of Sir Timothy Lloyd at [367]. In deciding the long running IBM ‘reasonable expecta-
tions’ pension case he rejected a contention that, in the context of the case, the commonly held
perception of the IBM group as a single enterprise would justify piercing the corporate veil.
See also Prassl n 22 above, 103. Indeed in Allen v Amalgamated Construction Co. Ltd C-234/98
[1999] ECR 1-8643 the Court of Justice had to reject the competition law single economic unit
approach in order to find that there could be a transfer of an undertaking between two sepa-
rately incorporated group companies. These issues are also discussed in J. McMullen, ‘Atypical
Transfers, Atypical Workers and Atypical Employment Structures—A Case for Greater
Transparency in Transfer of Employment Issues’ (1996) 25 ILJ 286.
See ARD, Art 3(1), and the definition of ‘transferor’ and transferee’ in Art 2(1). And see
28
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the business of B was acquired by the Print Factory (London) Limited 1991 Limited.
There may be an element of policy in this decision but the outcome of the case was
that it was found that A (at some point) had effectively transferred its business to
B. Thus, Millam had become an employee of B under TUPE and was protected on
the onward business transfer from B to the Print Factory (London) 1991 Limited.
This allowed him to make a claim against this (solvent) purchaser. The Court of
Appeal, upholding the original employment tribunal decision, concluded that the
integration of the business of A into B in this case amounted to a transfer of an
undertaking. Buxton LJ considered that ‘the legal structure is of course important,
but it cannot be conclusive in deciding the issue of whether, within that structure,
control of the business has been transferred as a matter of fact’.31 This is, of course a
difficult question. As Moses LJ32 said:
The mere fact of control, which will follow from the relationship between parent and subsid-
iary, will not be sufficient to establish the transfer of the business from subsidiary to parent.
There will often be little to distinguish between the case of transfer of control on acquisition
by a new parent and transfer of the business to a new parent.
But here there were evidential indications which established that control of the busi-
ness itself had passed from A to B.
Another example is Jackson Lloyd Limited and Mears Group plc v Smith33 where
it was found that, as from the date of an acquisition by way of share sale, the acquir-
ing company imposed major changes on its acquired company via an integration
team. An employment tribunal had found that the original company name was now
‘nothing other than a trading name’. There was an original genuine share sale acqui-
sition but, over time, the acquiring company had, in effect, taken over the business
of the company it had acquired, making it a subsequent Regulation 3(1)(a) TUPE
transfer.
Mr Berry maintained that a similar approach should be taken in the ICAP case.
He argued that the company which formerly operated the IGBB, namely ICAP plc,
and its CEO (Mr Spencer) had ‘left the scene’, and its executive management struc-
ture for operating IGBB had been closed down. That management and those struc-
tures, he asserted, had been replaced by the management and structures of TP ICAP
plc. According to the findings of the Court:
That transaction undoubtedly brought together ICAP and Tullett Prebon under common
ownership at the level of the ultimate parent company. It is common ground that that trans-
fer involved the introduction of oversight and strategic management across the enlarged
corporate group. It is accepted by the claimant that measures were introduced with the
intention of producing costs-savings from economies of scale and rationalisation of support
31
At [9].
32
At [13].
33
[2001] IRLR 144.
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services. That meant that services such as legal or human resources, which were formerly
provided in two separate corporate groups, were now to be provided in a single corporate
structure. It is also agreed that the setting of strategic targets and the consolidation of sys-
tems and procedures were introduced to ensure consistency across the new group.
But this was not the kind of exceptional case envisaged in Millam and Jackson Lloyd.
Here, on the front line, as it were, it was business as usual. The operating and service
companies carried on in the same way as before the share sale. Thus:
Standing back from the detail, I was left with the clear impression from the evidence I heard
and read that although the two companies, ICAP and Tullett Prebon now have a common
ownership, they remain two distinct, competing brands. Furthermore, the conclusion I have
drawn from the evidence is that the claimant, IMSL, continues to be responsible for its own
business and continues to bear the obligations of employer of its staff, including the first
defendant. Furthermore, in my judgment, the IGBB continues to be responsible for its busi-
ness and its employees. There is no new owner who has stepped into the shoes of [IMSL].
We tentatively suggest from these authorities, and from the discussion in the ICAP
case, that mere operational synergies between the acquiring company and its target,
together with the inevitable cost sharing and efficiencies that arise from corporate
mergers, do not of themselves amount to the indicia of a TUPE transfer. It seems to
us that in order for there to be a transfer of an undertaking following a share sale
acquisition, the acquirer must exert ‘supreme’ control over the acquired company
and its business and activities. Such was not the case in ICAP.
The exclusion of share sale transactions from the ARD and TUPE because of the
change of employer principle has nothing to commend it. And the case for includ-
ing share transfers within the scope of TUPE is extensive and well rehearsed.34
Employees involved in share sale takeovers do not enjoy certain valuable rights
applicable to TUPE transfers.35 But apart from a Private Member’s Bill in 2008,36
there has been no legislation which would apply TUPE style rights to share sale
acquisitions in the short or medium future. And in 2007, a European Commission
See the summary in McMullen, n 22 above. See also House of Lords Select Committee on
34
the European Communities, Fifth Report, session 1995-6: Transfer of Undertakings: Acquired
Rights (HL paper) 1995 to 96 No. 38-11 July 1995; P. Thornton, Inside the Dark Box: Shedding
Light on Private Equity (London: The Work Foundation, 2007); Prassl, n 22 above.
For example, the protection against contract variations and dismissal where the sole or
35
principal reason for variation or dismissal is the transfer itself (TUPE, Regs 4(4), 7(1)), and
the rules on information to and consultation with employee representatives (TUPE, Reg 13).
The Private Equity (Transfer of Undertakings and Protection of Employment) Bill.
36
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report on the ARD37 ruled out recommending that the ARD should be extended to
share sale acquisitions. One might be sceptical about the arguments advanced by Mr
Berry in ICAP for outflanking the ‘change of employer’ rule, since these were put
forward to allow him to escape his employment obligations during his period of con-
tractual notice. But the case for a broader approach to the concept of the employer
in business transfers that do not entail a legal change of employer remains pressing.
39
[1998] IRLR 313.
40
See SG&R Valuation Services Co v Boudrais [2008] EWHC 1340 (QB); Standard Life
Healthcare Ltd v Gorman [2009] EWCA Civ 1292.
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importantly, the obligation not to work for a competitor or indeed any other person
during the currency of the employment agreement).41
It does not follow, however, that the Courts will automatically enforce a garden
leave provision. An injunction to enforce a period of garden leave must be con-
sidered in the light of the restraint of trade doctrine.42 However, in Tullett Prebon
v BGC,43 the High Court suggested that enforcement of a garden leave provision
differs from the enforcement of a post-termination covenant, in that the enforce-
ability of a covenant has to be judged at the time it was entered into. In garden leave
cases, the court can also take into account the current situation of the employee (in
particular whether he/she is being indemnified or paid by the new employer). The
Courts recognise, however, that there is a public interest in employees being held to
contracts that they have entered into for substantial remuneration. For example, in
GFI Group Inc. v Eaglestone,44 Holland J said:
“If there is a current impression that these periods in these contracts negotiated with
these highly paid, highly skilled employees do not have the meaning that they purport to
have, then the sooner that is corrected the better.”
On the other hand, this consideration must be weighed against the public inter-
est in employees being freely able to exercise their skills by transferring from one
employer to another.45
In analysing Mr Berry’s position, the High Court in Berry was able to take into
account that there was no financial loss to Mr Berry because he was still in receipt of
his salary during garden leave and he was to be indemnified for lost bonuses by his
new employer, BGC. But the court also had to take into account whether there was a
legitimate interest for the employer to protect and that the injunction would extend
no further than was reasonably necessary to protect that legitimate interest. In this
case, the three legitimate interests relied upon were (1) client connections, (2) work-
force stability, and (3) confidential information. The High Court was not persuaded
of the first two considerations, but it was influenced by the last.
On the facts that Judge was unconvinced that there was any significant evidence
of client relationships which needed protection. Nor was there sufficient evidence to
show that Mr Berry’s early recruitment could be used to destabilise other employees
of ICAP. There was evidence that other employees would welcome working with Mr
Berry, but in the words of Garnham J:
See the discussion of such provisions in Eurobrokers Ltd v Rabey [1995] IRLR 206 ChD.
41
And see the discussion on drafting issues in Harvey on Industrial Relations and Employment
Law Div AII [96.1].
J M Finn & Co Limited v Holliday [2014] IRLR 102.
42
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In my judgment, this evidence falls some way short of that which would justify enforcement
of a garden leave provision, if it stood alone. That a man with the reputation and past success
of [Mr Berry] should be seen by other employees as a role model and an attractive person
in whose team to work is wholly unsurprising. But that is nothing like sufficient to show a
breach of a non-poach obligation.
…in circumstances such as the present it is often not possible precisely to identify the con-
fidential information which a senior employee may carry in his memory nor to ascertain
precisely what parts of the information would remain of current value. But as Lord Denning
explained in [Littlewoods Organisation v Harris [1997] 1WLR 472], that is precisely why
restrictions are agreed as part of employment contracts. In my judgment, protection of con-
fidential information constitutes a legitimate business interest which the claimant here is
entitled to protect.
Garden leave cases will often involve highly paid employees who will have benefited from
a generous remuneration package. There is no reason why they should not be expected to
respect the notice period; they benefit from the obligations imposed on the employer and
should reciprocate.48
46
at para 130/132.
47
From the evidence Mr Berry did not (quite) enjoy the photographic memory of Mike Ross
(played by Patrick J Adams), the character in the US legal drama TV series Suits, but his recol-
lection clearly impressed Garnham J.
48
‘Relational Contracts’, in Freedland (ed), n 9 above.
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7. CONCLUSION
J O H N M cM U L L E N *
*
Wrigleys Solicitors LLP and Durham University
email: john.mcmullen@wrigleys.co.uk. doi:10.1093/indlaw/dwx031
It may be argued this was giving BGC the benefit of the doubt. But the Judge was satisfied
49
that there was no reasonable prospect of BGC continuing to rely upon the TUPE arguments
following the trial.
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