Enforceability of restrictive covenants in unsigned employment contracts
The High Court has determined that restrictive covenants in an unsigned employment contract were binding on an employee in the recent case of FW Farnsworth Ltd and another v Lacy and others. The Court examined the actions of the employee in deciding whether he had impliedly accepted the employment contract containing the relevant post-termination obligations and considered, in particular, whether, by applying for benefits provided for under the new employment contract, the employee’s conduct was "only referable to his having accepted the new terms".
L was initially employed with FWF as a Technical Graduate and was promoted four years later to Site Technical Manager. L was given a new contract of employment to sign which, unlike his previous employment contract, contained certain additional benefits and restrictive covenants. L did not sign or return this contract, but also did not raise any objections as to its terms. A couple of years later, L left FWF to work with a rival, and FWF brought proceedings to the High Court to enforce the restrictive covenants contained in the new employment contract. L did not dispute the validly of the post termination obligations per se, but argued that he was not bound by them because he had not signed or accepted the new employment contract which contained these provisions.
The High Court concluded that L was subject to the terms of the new employment contract. The Court examined the two acts relied upon by FWF as denoting L’s acceptance of the new employment contract, these being (1) L’s move to a defined contribution pension scheme; and (2) L’s application for and acceptance of private medical insurance, both of which were only available under the new contract. The Court confirmed L’s subjective intention was not relevant and instead inference was to be drawn from his actions. The Court concluded that the move to the defined benefit pension scheme did not indicate his acceptance of the contract, as L had not moved pension scheme by choice (he was required to do this, as the final salary scheme closed down). However, the Court held that L’s use of the medical benefits evidenced that he had read the new contract and understood his terms of employment were being redefined. As such, L was bound by the terms of the new employment contract from the date he applied for the enhanced medical cover; this being the date he impliedly accepted the change to the terms of his employment.
Impact for Employers
- This case highlights the importance for employers to ensure that employment contracts containing new terms and conditions, particularly relating to post-termination obligations, are signed and returned by employees as soon as possible. This will reduce the chances of any subsequent claims by employees that they did not accept the new terms and will avoid employers being put in the precarious position of having to evidence that the employee had impliedly accepted the new terms through their actions.