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Employee bound by restrictive covenants in unsigned contract of employment

6th November, 2012

In the recent High Court case of FW Farnsworth Ltd and another v Lacy and others [2012] EWHC 2830, it was held that an employee will be bound by the restrictive covenants contained in a new contract provided to them after promotion even where the contract has not been signed and returned to the employer.

Mr Lacey was employed by Northern Foods Limited and worked at its subsidiary, FW Farnsworth Limited. In or around April 2003, Mr Lacey signed his first contract, which did not contain any post-termination restrictive covenants. In April 2009, Mr Lacey was formally promoted and sent a new contract that September which contained post-termination restrictive covenants. Mr Lacey briefly looked at the contract, but did not sign or return it to his employer and did not raise any objections in relation to it. The 2009 contract provided additional benefits; the ability to join a pension scheme and apply for private medical insurance for himself and his family. In or around March 2010 Mr Lacey joined the pension scheme and applied for and received private medical insurance cover from April 2010. In March 2012, Mr Lacey resigned in order to join a competitor of Northern Foods. Northern Foods brought proceedings against him in the High Court to enforce the post-termination restrictions contained in his 2009 contract; prohibiting him for working for a rival business and soliciting certain customers for six months following the termination of his employment.

Mr Lacey argued that he could not be bound as he had not signed or returned the contract. He stated that his employee status meant he was able to join the company pension scheme and claim medical cover. Northern Foods argued that Mr Lacey’s implied acceptance of the 2009 contract could be inferred by his actions in joining the defined contribution pension scheme and obtaining the private medical insurance family cover and this argument was upheld by the court. An interim injunction was granted and in the return hearing the court decided that Mr Lacey was bound by the 2009 contract containing the post-termination restrictive covenants and therefore the injunction should continue for the full six months post termination. It was held that Mr Lacey’s reading of the 2009 contract would, at the very least, have “alerted him to some redefinition of his relationship in legal terms” and choosing to apply for the new private medical insurance cover not previously available to him without protest or reservation, was “an unequivocal act referable only to his having accepted all the terms of the 2009 contract from the date of that application (in March/April 2010)”.

This case highlights the importance for employers of ensuring that existing employees sign and return new contractual terms which are issued to them following a change in role or a promotion. For further advice or information relating to the enforceability of post-termination restrictive covenants, please contact Helen Watson on 01244 405565 or send an e-mail to h[email protected].

 

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