Inducing a breach of contract

If you encourage an employee to break his contract with a former employer, that employer may be able to bring a claim against you for inducing a breach of contract. Typical situations are touting for business with the former employer’s clients or taking a team with you.

Common Examples of Inducement to Breach Contract

• Poaching employees under fixed-term contracts.
• Persuading a supplier to break exclusivity
• Interfering with franchise/agency contracts
• Persuading an employee to breach restrictive covenants

Who is Liable & On What Basis?

• The Inducer (Third Party) - can be liable in tort (the economic tort of inducing breach of contract). Requirements are a valid and enforceable contract exists, the inducer knew of the contract and intended to procure its breach, actual breach occurred, caused by the inducement and loss was suffered by the innocent contracting party.
• The Contract-Breaker (Party to the Contract) - liable for breach of contract (not the tort).

Induced breach of restrictive covenants

Employment contracts often include restrictive covenants preventing an outgoing employee from working for their former employer’s competitors. Restrictive covenants can be a headache not just for those they seek to bind but also their new employers, because of the ability to claim for inducing a breach of contract. If you know when you hire someone that you’re asking them to breach restrictive covenants to come to work for you, their former employer may bring a claim against you. How can you protect yourself in this scenario?

If a new employer and the employee seek legal advice about the legal effectiveness of restrictive covenants, this can in some cases protect them from inducement claims, even if the legal advice was incorrect.

Intention is Key

A claim for inducing a breach of contract is unusual because it requires the claimant to show an actual intention on the part of the guilty party. This is unlike many other civil offences which can arise from mere negligence on the part of the defendant. For a claim for induced breach of contract to succeed it must be shown that the defendant knew about the contract and intended to encourage another person to break it. It is the contractual breach which must be intended – it’s not enough that they induced someone to do something which later emerged to be a breach of contract.

Gannons  negotiate and advise on the effects of a wide variety of commercial and employment contracts. We are always happy to take your call and see how we can help.