In Allen v Dodd & Co, the Court of Appeal has ruled that an employer is not liable for inducing a breach of contract where it receives (and believes) legal advice that it is “more probable than not” that a restrictive covenant is unenforceable. This is so even if the employer believes that there is a risk that a covenant will be held to be enforceable and that employing the individual would breach that covenant, and the court subsequently finds that to be the case. Acknowledging that lawyers rarely give unequivocal advice, the court held that employers should be able to act on legal advice, responsibly sought, even if the advice turns out to be wrong.
The case highlights the importance of employers asking potential recruits about restrictive covenants in their existing employment contracts and seeking early legal advice on enforceability. (Previous authority has established that making a conscious decision not to enquire into whether the relevant act would amount to a breach can amount to knowledge.) If the legal advice is that it is more probable than not that no breach will be committed, and the employer honestly relies on that advice, it will escape liability for inducing a breach of contract even if that advice turns out to be wrong. Of course, employers should also bear in mind that disclosure of privileged legal advice cannot be done selectively – all advice on the same "transaction" may need to be disclosed.
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