HM Insights

Employee subject to restrictive covenants within unsigned contract of employment

Illustrates the importance of an employer not only issuing terms and conditions, but the receipt of a signed copy from the employee.

Facts

Mr Lacy was employed by Northern Foods Limited, initially in 2000 as a Technical Graduate, later becoming Site Technical Manager in 2009. In 2003, Mr Lacy had signed an employment contract and, though he was issued with a revised contract further to his promotion in 2009, this was never signed nor was it returned.         

This 2009 contract contained post termination restrictions and, when Mr Lacy resigned and sought to work for a competitor, Northern Foods Limited sought to enforce these restrictions.  The question before the court was whether the restrictions within this 2009 contract were enforceable, absent an express acceptance of the terms of this contract.

Decision

The High Court held that there had been an implied acceptance of the 2009 contract by Mr Lacy.  It considered whether the employee's conduct, by continuing to work was "only referable" to his having accepted the new terms of employment.  Under the terms of this contract, Mr Lacy became entitled to Private Medical Insurance, and made an application for this insurance in 2010.  Therefore, this act was deemed to be an unequivocal act referable only to having accepted all the terms of the 2009 contract as and from the date of that application.  Accordingly, Northern Foods Limited could rely on the terms of this contract and seek to enforce the restrictive covenants within.

Comment

This is the latest in a series of interesting cases on the application and enforceability of restrictive covenants. Although ultimately it was held that the employer could rely on the terms of the 2009 contract, this was found only due to Mr Lacy's application for Private Medical Insurance in 2010.  The issuing of the updated contract was not sufficient to establish this, nor was the fact that Mr Lacy continued to work for Northern Foods Limited.  It was only this positive action by Mr Lacy that showed that he had accepted the terms of the revised contract.

This is illustrative of the importance of not only issuing revised terms and conditions with appropriately drafted post termination restrictions on promotion, but obtaining a signed copy of the contract. Unless the employer is in possession of a signed contract, it may have difficulty in being able to show that an employee is bound by the post termination restrictions and therefore the opportunity to enforce the restrictions be lost at an initial stage. In the circumstances above, although Mr Lacy was ultimately found to have accepted the 2009 contract, this was not until the application for Private Medical Insurance was made – had Mr Lacy left the company before this point, it would appear that the court would not have upheld the restrictions, and no remedy or protection would have been available to the employer.