Business Law: Andrew West on the importance of employment contracts

Andrew West of Gotelee Solicitors

Andrew West of Gotelee Solicitors - Credit: Archant

A RECENT case provides some helpful clarification on the contractual position if an employee does not sign a new contract.

When you promote an employee, it is common practice to ask the employee to sign a new contract of employment, especially if you want to the employee to be bound by post termination restrictive covenants to protect your business. But what if you issue a new contract and it is not signed? Are the new terms accepted?

If the employee carries on working without protest, the employee will usually be deemed to have agreed to only the new terms which have an immediate practical impact (such as increased pay). As restrictive covenants only come into their own after the employment relationship has ended, the courts will frequently say that they are not binding in the absence of a signed contract or acceptance of them by the employee.

In a recent tribunal case (FW Farnsworth Limited & Anor v Lacy & Ors) Mr Lacy was employed as a quality assurance manager and then promoted to site technical manager. Five months after his promotion took effect, Mr Lacy was sent a new contract, which contained new post termination restrictive covenants. Mr Lacy did not sign or return the contract, but nor did he raise any objections to the covenants.

The contract also provided for Mr Lacy to be eligible for benefits to which he was not previously entitled, including the right to join a defined contribution pension scheme and to apply for private medical insurance. Mr Lacy applied for and took up both benefits.

Mr Lacy subsequently resigned to join a competitor and the employer brought proceedings to enforce the post-termination restrictions. Unsurprisingly, Mr Lacy argued that the post-termination restrictions were unenforceable, as he had not signed the new contract and consequently had not accepted the restrictions. The High Court decided that Mr Lacy was bound by the new contract and the restrictive covenants contained within it; his positive action in applying for the benefits evidenced his intention to accept all of the terms of the new contract.

Had Mr Lacy not applied for the enhanced benefits, the outcome might have been very different. When making changes to contracts which include unattractive provisions such as restrictive covenants, make sure that any promotion (and benefits) are conditional upon the signing of the new terms.

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Alternatively, in the absence of agreement, you could consider terminating the employee’s employment on notice and offer re-employment on the new terms and conditions. Relying on acceptance through conduct can be a “hit or miss” affair.

: : Andrew West is employment law partner at Gotelee Solicitors.

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