Worth the paper it’s written on?

04 Feb 2013

F.W.F. Farnworth Limited v Lacy

The facts of this case are very common in practice.

The employee signed a contract in 2003 when he was a relatively new employee and quite junior.  In 2009 he was promoted and was given a new contract which he did not sign.

The second contract (the 2009 contract) contained post termination restrictions which the first contract (the 2003 contract did not).

A key question for the High Court was whether Mr Lacy was engaged under the 2003 contract or the 2009 contract.

The company pointed out that Mr Lacy had accepted benefits under the 2009 contract such as a better pension, higher salary, better car, profit related pension plan and had also applied for and got medical benefits for himself and his family that were only available in the 2009 contract.

The company said that, from the facts, acceptance of the 2009 contract could be inferred.

The law in relation to inferring acceptance of a contract of employment is that there must be acts which can be categorised as "unequivocal acts implying acceptance".

The Judge hearing the case concluded, on the evidence of Mr Lacy's application for private medical insurance after having read the 2009 contract and absence of any complaint or question of any of its terms, was an unequivocal acceptance of the terms of the contract including the post termination obligations.

On the evidence of the case without the applications for PMI it is highly likely that acceptance of the 2009 contract would not have been inferred and the employer would not have been able to rely on the restrictive covenants.

Our view:

The more senior the employee, the greater the likelihood that they can cause their employer damage if they leave and join a competitor.  In such circumstances, any sensible employer will ensure that, when an employee is promoted, they are required to sign a contract of employment containing any relevant post termination obligations at the time of promotion.  Linking the increased payment to receipt of a signed contract is a good way of ensuring that the contract is, in fact, signed.  The fact that the employer is trusted and is a company man is all well and good but relying on post termination restrictions in unsigned contracts is fraught with risk and danger.