Employment Contracts and Specific Performance

Specific Performance and Injunctions

‘Specific performance’ is a type of equitable remedy available, in some circumstances, and at the court’s discretion, for breach of contract; it entails an order by the court which legally compels a party to a contract to fulfil its contractual obligations. It differs to a common law remedy of damages.

There is a sizeable body of law affecting whether the court will, or will not, grant an order for specific performance; however, notably, the court will usually only issue an order for specific performance if there is a valid, enforceable contract and damages (money) would be an inadequate remedy. In order to establish that damages are not adequate, the claimant will usually have to show that either:

• The subject matter of the contract is unique; or
• Damages would be financially ineffective.

This article focuses on specific performance in an employment context.

An ‘injunction’ is also a type of equitable remedy available in some circumstances, and at the court’s discretion; it is an order for a party to do, or refrain from doing, a particular act.

In Societe Generale, London Branch v Geys [2012] UKSC 63, the court recognised than an injunction could be analogous to an order for specific performance: “…an injunction, analogous to specific performance…”

Specific Performance and Employment Contracts

As mentioned above, there must be a valid, enforceable contract, which complies with any necessary formalities. The formalities for the formation of a contract are:

• Offer
• Acceptance
• Consideration
• Intention to create legal relations
• Certainty of terms

It is long-established that contracts for personal services (including employment contracts) are not usually specifically enforceable; this is because such a compulsion would undermine personal liberty, and in an employment context, in which a working relationship relies on mutual trust and confidence between an employer and employee, compelling such a relationship to continue could cause difficulties.

Instead, if there has been a breach of contract, the aggrieved party could sue the wrongdoing party for damages; in certain circumstances, an employer could dismiss an employee immediately for gross misconduct, and an employee could sue their employer for unfair dismissal.

However, the general rule can be departed from in some circumstances; in Hill v C. A. Parsons & Co. Ltd. [1971] 3 W.L.R. 995, in relation to the mutual confidence required between an employer and employee, the court recognised that “Here such confidence does exist”, and granted an injunction, restraining the employer from treating a notice that it had given to the employee in breach of contract (and which was not accepted by the employee) as terminating his employment. The court also stated that, in this case, damages would be an inadequate remedy.

Generally, certain terms and features of a contract may be a ground for refusal of an order for specific performance. These include:

• Conditional obligations
• Terms insufficiently certain for specific performance
• Terms contrary to public policy
• Penalty clauses
• Exclusive remedy clauses
• Contracts for terminable interests

Flexibility in the court’s approach is perhaps shown in Robb v Hammersmith And Fulham London Borough Council [1991] I.C.R. 514, in which, despite there being a loss of mutual trust and confidence between the employer and employee, the court granted an order restraining the employer from dismissing the employee, restraining the employer from treating the employee as other than continuing to be employed whilst the employer complied with the disciplinary procedures in the employee’s employment contract, and requiring the employer to pay the employee’s salary during this time; the court determined that the order was “workable” as (amongst other reasoning) the employer admitted being in breach of contract and the employee would be suspended and not undertaking his usual work.

It should be noted that this therefore seems to be quite different from a compulsion to continue to employ someone in the ordinary sense of ‘employ’.

Potential Softening of the General Rule

In the more recent case of Societe Generale, London Branch v Geys [2012] UKSC 63, there was also an allusion to the general rule against specific performance being granted in relation to employment contracts being softened, when the court considered “The big question whether nowadays the more impersonal, less hierarchical, relationship of many employers with their employees requires review of the usual unavailability of specific performance has been raised…”

Specific Performance and Employees

Unlike employers, employees have explicit statutory protection against an order for specific performance being made in relation to their employment contract; the Trade Union and Labour Relations (Consolidation) Act 1992 states that the court must not make an order for specific performance to “compel an employee to do any work or attend at any place for the doing of any work.”

However, whilst this seems clear, this has not prevented the court from making declarations that employment contracts are subsisting in some circumstances, or that certain contractual obligations contained within an employment contract are continuing in some circumstances.

In Sunrise Brokers LLP v Michael William Rodgers [2014] EWCA Civ 1373, an employee ceased working without giving the notice he was contractually obliged to give; instead of accepting his repudiatory breach of contract, his employer affirmed his employment contract (the court found that the employer’s decision to stop paying the employee did not amount to acceptance of his repudiatory breach of contract, as work and payment are mutual obligations, and the contract could continue even if those obligations were not being performed). Following an application by the employer, the High Court declared that the employee was still employed until the expiration of a reduced notice period which the employer agreed to, and made orders (including injunctive relief) which (in modified form) enforced both pre-termination restrictions and post-termination covenants contained in the employee’s employment contract. These had the effect of restraining the employee from working for competitors of the employer (although not any other employer) until the expiration of the notice period and for a further period of several months based on the date of the employee’s last client contact. The High Court’s decision was upheld by the Court of Appeal.

Conclusion

Despite the reluctance of the court to order specific performance in relation to employment contracts, and even though the court will not force an employer to employ or force an employee to work indefinitely, both employers and employees should be aware that they may, in some circumstances, be held to provisions contained within employment contracts to which they are a party through orders for specific performance and injunctive relief.

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Clarkslegal’s experienced employment lawyers and dispute resolution lawyers can advise on a wide range of matters, including instigating litigation and working to obtain appropriate remedies if necessary; please do not hesitate to get in touch with our employment team.