Sadler v Imperial Life Assurance of Canada

Sadler v Imperial Life Assurance Co of Canada Ltd (1988) IRLR 388

Clause restricting employee’s ability to recover commission in restraint of trade

Facts

The plaintiff was employed by the defendant for 17 years. As an insurance agent, he was reimbursed on a commission basis. When the plaintiff terminated his employment, there was in existence a number of policies under which he would have been due continued commission payments if his employment continued. The plaintiff’s contract of employment provided that his entitlement to this commission would immediately cease if he “entered into a contract of service or for services” with another organisation involved in the selling of insurance.

Issues

The plaintiff admitted that he had continued to work within the insurance industry to the effect that, if the contract was still subsisting, he would have been in breach of it. In those circumstances, the defendant took the view that it was not required to pay the plaintiff any post-termination commission. The plaintiff submitted that the proviso regarding post-termination commission was an unlawful restraint of trade. The defendant submitted that the proviso did not deprive the plaintiff of any freedom which he would otherwise have had and therefore it did not operate in restraint of trade.

Decision/Outcome

The Court held that the proviso constituted an unlawful restraint of trade which alone could be struck out of the contract so that the plaintiff was entitled to post-termination commission to be ascertained in accordance with the remaining provisions of the contract. The Court confirmed that any financial incentive to limit a former employee’s activities amounted to a restraint in trade. The effect of the proviso in this case was that if the plaintiff was to recover post-termination commission, he was required to give up the freedom to take employment in whichever field he chose.