Employment: Unfair Competition - US

29 August 2007

There was no claim in the USA against UK-based employees even though their bonus agreements were expressed to be subject to US law.

The Court of Appeal has recently had to consider an EU Regulation (EC) 44/2001 which requires that, in matters relating to individual contracts of employment of EU employees, employers may bring legal proceedings only in the EU Member State in which the employee is domiciled.

This overrides anything that may be said in the contract itself.

This question arose for decision in the case of Samengo-Turner and others v Marsh & McLennan. The EU-domiciled employees were insurance brokers working for a UK company which was part of a group of companies. The employees had entered into bonus agreements with the holding company which was based in New York.

The bonus agreements provided for cash awards payable by instalments which could be repaid in the event of the employee engaging in ‘detrimental activity’ and were expressed to be subject to the exclusive jurisdiction of the New York Courts. When the employees disclosed that they intended to leave and work for a competitor, the holding company instituted Court proceedings in New York alleging that they employees had engaged in ‘detrimental activity’ and seeking repayment of awards under the bonus agreement.

The employees sought an injunction from the UK Courts to prevent the New York claim from proceeding, claiming that the EU Regulation applied.

The High Court Judge who initially heard their claim considered that he could not make such an order because the New York holding company was not their employer and the bonus agreements were therefore not ‘individual contracts of employment’.

The Court of Appeal has now allowed their appeal and made an order staying the New York Court proceedings. The bonus agreement related to, and indeed was part of, the individual’s contract of employment. The employment contract need not be made in one document or at one time. Thus, the EU Regulation overrode the jurisdiction clause in the bonus agreement and claims under that agreement could only be made against the employees in the UK Courts.

Points to note:

  • The Court of Appeal was content that the holding company should be treated as the employer even though it was not. It said that it was recognising the reality of the situation as regards companies in the same group having the same economic interest. The judgment notes that the Court is deliberately following the less formalistic approach to corporate group structures taken recently in the restrictive covenants case of Beckett Investment Management Group v Hall.

  • The fact that the employer was not EU-domiciled was irrelevant. Non EU companies (and holding companies in particular) should appreciate that, if an employee is EU-domiciled, then he or she can require to be sued in their country of domicile regardless of where their employer is based.