Employment Law Speed Read – 30/04/18
30th April, 2018
This week we look at a case where the Supreme Court provided guidance and clarity on circumstances in which negotiating damages should be awarded.
Morris-Garner and another v One Step (Support) Ltd
In Morris-Garner and another v One Step (Support) Ltd the Supreme Court clarified the law on ‘negotiating damages’.
What is negotiating damages?
‘Negotiating damages’ is the money that a claimant would reasonably have demanded in order to allow a release of a covenant in a contract i.e. if, instead of breaching a contractual clause, the parties had negotiated a release from it, the amount which would have been paid.
Background of the case
The defendants entered into a restrictive covenant that prohibited them from soliciting One Step’s customers or competing with the business for a period of three years. Subsequently, the defendants set up a competing business in the restricted term in breach of contract.
One Step brought a claim for breach of the restrictive covenants. The Court at first instance found for One Step, and as it would be difficult to quantify their actual financial loss, they allowed One Step to elect for negotiating damages.
Court of Appeal
The defendants’ appealed against the decision to allow negotiating damages.
The Court of Appeal held that test for negotiating damages was whether it was a ‘just response’ and that negotiating damages were not restricted to ‘exceptional’ cases where there was no ‘identifiable financial loss’ and so it dismissed the appeal.
The defendants appealed again to the Supreme Court.
The Supreme Court have now overturned the Court of Appeal’s decision and held that negotiating damages were not available for the loss of profits and goodwill – which form the basis of many breach of restrictive covenants cases.
The core test proposed by the court when determining whether negotiating damages are available was that, where the breach “results in the loss of a valuable asset created or protected by the right which was infringed, as for example in cases concerned with the breach of a restrictive covenant over land, an intellectual property agreement or a confidentiality agreement”, then negotiating damages may be appropriate.
However, the court found that the loss of profits and goodwill alleged by One Step were not in the nature of the loss of a valuable proprietary asset, created or protected by the right which was infringed. Although difficult to quantify, the losses could be proven in a normal conventional manner.
As a result, negotiating damages were not available to One Step, and they would have to prove their losses.
In an employment context, you may see some agreements where it says that a covenant (such as confidentiality) is so important, that if it is breached then the loss has been assessed in advance as £XXXXX, which is how much money the employer would have demanded for the information to be made public.
This case shows that ‘negotiating damages’ may still be used for confidentiality clauses but it may now be harder (but not impossible) to use clauses for non competition or solicitation covenants.
If you have any questions on the above and how it will affect you, please do not hesitate to get in touch with a member of our employment team.