Employment Law Explained

Implied Restrictive Covenants?

 

If an employee doesn’t sign an employment contract containing restrictive covenants can he be held to them subsequently? The answer is yes, but it will depend on very particular circumstances. The general rule is that an employee must expressly consent to be bound by restrictive covenants for them to be effective. However, in the case of F W Farnsworth Foods Ltd (1) Northern Foods Ltd (2) v Lacy and Ors [2012] EWHC 2830 the First Defendant, Mr Paul Lacy was held to have impliedly consented to the imposition of restrictive covenants (such as a non-compete, non-dealing and non-solicitation clauses), despite the fact that he had never signed the new contract provided to him upon his promotion to a senior management grade in 2009. The Claimants had obtained an injunction against Mr Lacy and this hearing was held to decide whether it should continue pending a full trial of the dispute.

Employers will usually wish to argue that the employee is bound by the restrictive covenants moused in the new contract by virtue of the fact that the employee carried on working without specifically objecting to the new clauses. The task for the court then is to assess whether the employee’s continued employment was consistent with the new clauses applying or, in the words of the test laid down in the leading case of Solectron Scotland ltd v Roper and Ors [2004] IRLR 4

Is the employee’s conduct, by continuing to work, only referable to his having accepted the new terms imposed by the employer?”

This is the “only referable” test and the courts are slow to find that an employee accepted the new terms by virtue only of his conduct. If an employee refuses to sign the new terms but works on under protest he may not be bound.

In Mr Lacy’s case he had joined Farnsworth Ltd in 2003 and signed an employment contract that contained no restrictive covenants. In 2009 he was promoted and was handed a new contract which did. Mr Lacy did not sign it. In his evidence he admitted to putting it in a drawer and forgetting about it, which assertion Mr Justice Hildyard did not accept. As well as the restrictive covenants, the new contract entitled Mr Lacy to improved benefits that he was only entitled to by virtue of his new grade. The Judge therefore considered that the case turned on the following two points,

1. Were the benefits for which Mr Lacy applied necessarily referable to the 2009 contract?

2. Were the Claimants able to prove an unequivocal act uniquely referable to acceptance by Mr Lacy of the 2009 contract, such as to satisfy the Solectron test?

Ultimately the Judge held that Mr Lacy’s application for private medical insurance (PMI) to cover his family meant he had accepted the terms of the new contract. PMI wasn’t available to more junior staff and it wasn’t just given to him automatically; he had to apply for it. The fact he was able to apply for the benefit at all was due to the new contract;

In my judgment, Mr Lacy’s application for PMI in the form mandated by the 2009 Contract, after he had read its terms (however speedily), and without expressing any protest or reservation, is properly to be characterised as an unequivocal act referable only to his having accepted all the terms of the 2009 Contract as and from the date of that application (in March/April 2010).

The circumstances of this case are not that unusual. What is significant is that the employee was bound by covenants which he had not expressly consented to. The circumstances in which an employee will be bound will be rare and the courts will conduct a forensic enquiry into what actions the employee can be said to have taken to affirm the new contract, even if the employee claims it had lain unforgotten in his drawer (as Mr Lacy claimed). On that point the Judge was unimpressed;

He [Mr Lacy] sought, in the course of his cross-examination, to explain his request [for a copy of the 2009 contract] away on the basis that, in anticipation of his resignation, all he was doing was checking to see what a senior manager’s contract would make provision for; he also accepted that he did so in part to assess his legal position and exposure. This evidence does not answer the question posed as to what prompted him suddenly to remember what he claims he had entirely forgotten; it does not dispel the obvious inference that he did know that there was a document extant by which he (at least) might be bound; and it raises the further question why he thought he might have legal exposure under such a document at all if (as is his case) he had never accepted it.

The judge finally held that Mr Lacy was bound by the terms of the 2009 contract from the date he applied for PMI. He was bound by the post-termination restrictive covenant which prevented him from working for a competitor or dealing with or soliciting clients for six months post-termination. The Claimants therefore kept their injunction preventing him from working for his new employer until such time as the covenants had expired, albeit by the skin of their teeth. All of this could have been avoided had the employer chased Mr Lacy for a signed copy of the 2009 contract.

 Implied Restrictive Covenants?   contracts of employment

Michael Scutt, Employment Solicitor 

Employment solicitor with Crane and Staples, Welwyn Garden City, Hertfordshire. Blogger & writer. I like cycling, cricket, football and history.