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31 October 2012

Employee bound by post-termination restrictions

A recent decision of the High Court (Chancery Division) has upheld post termination restrictions contained in an unsigned contract of employment.

In the recent case of FW Farnsworth Limited v Lacy, the employee (Mr Lacy) had been promoted to the position of ‘site technical manager’ in April 2009 and was eventually (five months later) issued with a new contract of employment containing post-termination restrictive covenants.  Mr Lacy did not sign or return his revised contract of employment; he briefly looked at it before putting it in a desk drawer, but he raised no express objections to the contract.

The new contract included a number of new employee benefits, including private medical insurance and a pension scheme, in addition to the restrictive covenants.  Following his resignation in March 2012 in order to work for a competitor of his employer, Mr Lacy sought to argue that he was not bound by any of the restrictive covenants because he had not signed the contract of employment.  His employer brought proceedings in the High Court to enforce the restrictive covenants, which would prevent him from working for the competitor for six months following the termination of his employment.

The Court held that Mr Lacy had impliedly accepted the new contract, as he had taken advantage of the enhanced employee benefits under the contract (including applying for the private medical insurance), without any protest or reservation, and was therefore bound by the agreement. The restrictive covenants were therefore enforceable.

Comment

Although the restrictive covenants were held to be enforceable in this instance, the case is a useful reminder of the importance of (1) issuing revised contracts of employment to employees who have been promoted, and (2) ensuring that revised contracts are signed and returned by the employee. 

It is much easier to rely on signed contracts of employment than to succeed in arguing at a later date that a revised contract has been impliedly accepted by the employee.  HR practitioners should therefore ensure that they diarise deadlines for obtaining signed contracts of employment from employees, and to actively encourage employees to raise any concerns about a new contract at the point it is issued.  This will make it much harder for an employee to argue that they are not bound by any new terms under the contract at a later date.