Monday, 17 December 2012

Conditional Benefits and Breaches of Undertakings

[Thanks to Dr John McMullen of Wrigleys Solicitors LLP for preparing this case summary]
Can an employer withdraw a conditional benefit under a compromise agreement when the employee is in breach of his undertakings?

Yes, says the Queen's Bench Division, on the facts in Imam-Sadeque v Bluebay Asset Management.

Mr Imam-Sadeque (I-S) was a highly paid and senior investment manager.  He wanted to leave his employer. If he resigned, he would be a "Bad Leaver" for the purposes of a share option scheme. However, he entered into a compromise agreement which would deem him to be a "Good Leaver", and allow him to exercise share options worth £1.7million. But this benefit was conditional on compliance by the employee with promises not to compete or solicit BlueBay's employees.

The employee broke these terms by secretly setting up in competition and poaching an employee. The employer withdrew the benefit on account of these actions.

The High Court held that BlueBay was entitled to do this on account of  I-S's repudiatory breach of the agreement, and the shares were forfeited.

Nor was the condition a penalty. All the agreement did was to confer rights on I-S which he would not otherwise have had. The agreement conferred a conditional benefit which simply never accrued because the employee failed to fulfil the condition, namely performance of the agreement on his part. Furthermore this was an agreement struck between sophisticated parties of comparable bargaining power.

In the words of Popplewell J, It would be an "injustice" to BlueBay if the employee could escape his bargain.

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