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Case illustrates importance of signing employment contracts

A recent High Court case highlights the importance when issuing new employment contracts of making sure that employees sign and return a copy of the contract.

In the case of S.W. Farnsworth Limited v. Lacy, the employer sought to enforce restrictive covenants which prevented the employee from working for a rival business and soliciting defined customers in the six months following termination of his employment.  The restrictive covenants were not contained in the employee’s original employment contract which he had signed in 2003 but were in a subsequent contract issued in 2009 after a promotion, and which Mr Lacy did not sign or return to his employer.  The employee had briefly reviewed the contract, filed it back in his desk drawer and had not raised any objections to it.

Mr Lacy resigned some time later and commenced work in breach of the restrictions contained in the updated contract.  At the trial, the employee did not dispute the covenants but argued that he was not bound by them because he had not signed and therefore had not accepted the later 2009 contract.

Luckily for the employer, the Court decided that the employee was bound by the 2009 contract. However, thiswas only because he had applied for Private Medical Insurance (PMI) which was a benefit in the 2009 but not the earlier contract.  However, if the employee had not applied for the Private Medical Insurance, it seems that the Court would not have found that he was bound by the 2009 contract and therefore the post-termination restrictions contained in it.  It is also worth noting that the employee did not actually apply for the Private Medical Insurance until a year after he was issued with the new contact, so arguably was not bound by the new contract for a period of one year after being issued with the contract. 

This case highlights that where an employer wishes to issue a new employment contract it is crucial to make sure that the employee signs it.  In the case in question it is only the fact that the employee had signed up for the PMI that led to a finding that he was bound by the new contract.

Conversely for employees the case highlights that if an employee does not wish to be bound by an updated contract but continues to work for the employer they must make it clear that they are working under protest and that they do not accept the new terms.  The Court will look at the employee’s conduct rather than their wishes or intention when deciding whether a change in terms has been effected.