Want to talk to an expert employment law solicitor?

You'll receive a callback from a specialist within an hour

In the case of Nosworthy v Instinctif Partners Limited EAT/0100/18/RN, the Employment Appeal Tribunal (the ‘EAT”) held that the Employment Tribunal (the ‘ET’) had been correct in dismissing the claims made by an employee who had lost the right to receive cash payment, loan notes and new shares in her employer when she voluntarily resigned from her employer.

The Facts in Nosworthy v Instinctif Partners Limited

Miss Nosworthy (the ‘Claimant’) was given a 2% shareholding in her employer, Communications Operations Limited, which was then sold with the rest of the company’s shares when it was acquired by Instinctif Partners (the ‘Respondent’). As a result, the Claimant was entitled to deferred payment for part of her shares under a three year ‘earn-out’ scheme in the Share Purchase Agreement which provided for her to receive cash payments, loan notes and new shares in the Respondent.

These arrangements served as a mechanism by the Respondent to incentivise retention of key employees. Bad leaver provisions meant the Claimant received £143 for her shares and forfeited loan notes when she voluntarily resigned in 2016 as she lost their entitlement to earn-out payments and had to sell her loan notes and new shares back to the Respondent at their acquisition cost.

The decision of the Employment Tribunal

The Claimant brought a claim in the Employment Tribunal and challenged the bad leaver provisions on three grounds:

  1. that they were “unconscionable” and therefore unenforceable
  2. that they amounted to an unlawful penalty clause
  3. that they amounted to an unlawful deduction from her wage

All arguments raised by the Claimant were rejected by the Employment Tribunal and she went on to appeal the decision in the Employment Appeal Tribunal.

The decision of the Employment Appeal Tribunal

Unconscionable Bargain

Here the EAT reminded itself that this required that “one party has to have been disadvantaged in some relevant way as regards the other party, that other party must have exploited that disadvantage in some morally culpable manner, and the resulting transaction must be overreaching and oppressive”. It held that there was no evidence of serious disadvantage whether through poverty, or ignorance or lack of advice (the Claimant had confirmed she had received legal advice on the agreement at the time of entering into them).  The first ground of appeal therefore failed.

Unlawful Penalty Clause

The EAT was also unconvinced by the argument that such provisions were an unlawful penalty clause. A penalty clause relates to damages for breach of contract which are purely a deterrent against a breach rather than a genuine pre-estimate of loss. Penalty clauses are generally unenforceable.  Thus, a penalty has to operate on a breach of contract.  The investment agreement, to which the Claimant was a party, contained a covenant that she would not become a bad leaver (as defined in the Articles of Association). Whilst it was acknowledged that the Claimant had breached the investment agreement, the Respondent was not relying on this breach to enforce the bad leaver provisions; it was simply applying the standalone rules set out in its Articles of Association. Therefore, the issue of penalties was not relevant in this case.

Unlawful Deduction from Wages

Finally, the EAT held that this could not amount to an unlawful deduction from wages under section 27(2)(e) of the Employment Rights Act 1996.  Whilst the claim in respect of earn-out shares and loan notes could be said to be payable in connection with employment, they were deferred consideration for the sale of her shares and therefore provided to the Claimant as a vendor of shares, not in her capacity as a worker.

Our solicitors’ views on the case of Nosworthy v Instinctif Partners Limited UKEAT/0100/18/RN

Sacha Barrett, a Senior Associate in the employment department at Redmans, made the following comments on the case: “This case highlights the importance of employees taking legal advice prior to entering into a share scheme as widely drafted bad leaver provisions can be enforceable.’

The decision of the Employment Appeal Tribunal in UKEAT/0100/18/RN can be found here.

About

Redmans Employment Team deal with employment matters for both employers and employees, including drafting employment contracts and policies, advising employers and employees on compromise agreements, handling day-to-day HR issues, advising on restructures, and handling Employment Tribunal cases for both employers and employees Call 020 3397 3603 to speak to one of the members of our employment team or email us on enquiries@redmans.co.uk. Redmans have offices in Richmond, Chiswick, Hammersmith, Fulham, Kingston, Wimbledon, Ealing, Kings Cross and Marylebone (meetings strictly by appointment only).

Want to talk to an expert employment law solicitor?

You'll receive a callback from a specialist within an hour

Share →

Our awards

Request a callback

Your name

Your email

Your telephone number

Contact us

Please feel free to discuss your own position and concerns. Contact your nearest office on:

T: 020 3397 3603
E: enquiries@redmans.co.uk
W: www.redmans.co.uk

Testimonials

4.76 Average

124 Reviews

Brittany

I was very grateful for Redmans to treat my case with respect and discretion. At the time, I was very new to London and it was meaningful to have someone on my side and win the case for me. Without any doubt, I would definitely recommend Redmans Solicitors to anyone who is in need of it.

Posted 4 months ago

Jake L

Chris is very professional and calm. Very attentive and patient, been a positive experience having Chris represent me, and would recommend him.

Posted 5 months ago

Anonymous

Excellent service. It was a pleasure to work with Chris H, who is brilliant at what he does and very efficient. Their Senior Associate Rana T. is also very knowledgeable and resolves any queries speedily and efficiently. My issue could unfortunately not be resolved, but that was due to my employer and not the firm. Redmans however did all they could. I would definitely recommend them.

Posted 5 months ago

Anonymous

Very pleasant and quick to deal with. Mnay thanks.

Posted 5 months ago

Anonymous

Easy to get hold of. Quick.

Posted 5 months ago

Owen J

Very helpful, efficient service.

Posted 5 months ago

Anonymous

I am very lucky that I worked with Mr. Chris Hadrill and he managed my case very progressively with an analytical approach and trustfully. Of course with a very positive result. I strongly recommend Mr. Hadrill to any one seeking for a successful result from a highly qualified solicitor.

Posted 6 months ago

Kulbir S

Amazing, quick friendly service from Chris from the start and Caroline. They made me feel at ease during a difficult time, they understood and advised accordingly and I am really happy with the outcome of my case. Will always advise anyone who needs legal advice to contact Redmans, I’m so glad that I did and can confidently say I don’t think any other firm could have handled my case any better. Well done guys, wish you all the best and please keep doing what your doing, simply the best!

Posted 6 months ago

Mark A

Excellent service - rapid and “to the point” advice given to ensure meeting the target time frame

Posted 6 months ago

Anonymous

Chris Hadrill kept me sane during the negotiations with my employer. He was courteous professional and he cared about doing the best he could for me. I will use Redmans again if ever I need an employment solicitor. Excellent service.

Posted 6 months ago

Muhammad Z

Awesome services. Professionals at their best .

Posted 6 months ago

Anonymous

Thanks for the advice and for negotiating a good outcome. Good to have the support at a very stressful time

Posted 6 months ago

Chloe F

My solicitor at Redmans was very helpful and efficient. Really pleased with the smooth service.

Posted 6 months ago

Anonymous

Chris was absolutely excellent. Clear and concise, offering sound advice.

Posted 6 months ago

Tim O

Experienced and competent advisors

Posted 6 months ago

Rachel A

Quick and expert assistance. I would highly recommend Chris for any of your legal needs.

Posted 6 months ago

Joe S

I was very happy with the service provided by Chris and the team at Redmans Solicitors. I felt very comfortable discussing all matters with Chris and am very grateful for all the help and guidance I was given throughout the whole process. I would definitely recommend Redmans Solicitors to friends and family!

Posted 6 months ago

Anonymous

I had a very good experience working with Chris Hadrill during a difficult and emotional time. This held true from the moment I spoke to him on the phone, to the end of the process. Overall, he was attentive, professional and highly supportive. He provided sound advice and clarity. It was the reviews that led me to Redmans! I was very happy to know they were all true. I highly recommend working with Redmans Solicitors. Thank-you to the entire team!

Posted 6 months ago

Anonymous

Good service

Posted 6 months ago

Anonymous

Excellent professional service. Highly recommend.

Posted 6 months ago

Rob O

Very prompt response and I could not fault the service. My solicitor listened carefully to the details of my case and I felt very confident in the advice I was offered. All emails and work done on my behalf with my former employer was of the highest standard and Redmans helped take a lot of the stress out of the situation for me.

Posted 7 months ago