Inducing a breach of contract

If you encourage an employee to breach their contract with a former employer, that employer may be able to bring a claim against you for inducing a breach of contract. Common examples include soliciting the former employer’s clients or encouraging a team of employees to leave and join your business.

Common Examples of Inducement to Breach Contract

• Persuading employees to breach fixed-term employment contracts.
• Inducing a supplier to breach an exclusivity agreement.
• Interfering with franchise or agency agreements.
• Encouraging an employee to breach restrictive covenants.

Who is Liable & On What Basis?

• The inducer (third party) – may be liable in tort for inducing a breach of contract. The claimant will generally need to establish that a valid and enforceable contract existed, the inducer knew of the contract and intended to procure its breach, an actual breach occurred as a result of the inducement, and loss was suffered.
• The contract-breaker (party to the contract) – may be liable for breach of contract, rather than for the tort of inducing a breach.

Induced breach of restrictive covenants

Employment contracts often contain restrictive covenants that limit an employee’s ability to work for competitors, solicit clients or approach former colleagues after leaving. Restrictive covenants can create difficulties not only for the employees bound by them but also for their prospective employers, who may face a claim for inducing a breach of contract.

If a new employer knowingly encourages an individual to breach enforceable restrictive covenants, the former employer may have grounds to bring a claim. It is therefore important to understand the scope and enforceability of the restrictions before recruiting the individual or taking steps that could encourage a breach.

Obtaining legal advice on the enforceability of restrictive covenants can help a prospective employer and employee understand the risks and inform their decisions. However, taking advice does not automatically protect them from an inducement claim, particularly where the relevant legal requirements are otherwise satisfied.

Intention is Key

A claim for inducing a breach of contract requires more than simply showing that a third party’s actions resulted in a breach. The claimant must generally establish that the defendant knew of the contract and intended to procure its breach. It is not enough that the defendant intended to carry out an act that later turned out to involve a breach, without the necessary knowledge and intention to induce that breach.

Gannons advises on commercial and employment contracts to help you manage the risks of inducing a breach of contract. Contact us on 020 7438 1060.