Post-Termination Restrictions in Unsigned Contracts Can Still Bind Employees

The High Court held in FW Farnsworth Limited v Lacy [2012] EWHC 2830 that an employee was still bound by restrictive covenants in his employment contract, even though he had not signed the contract.  This was because he had impliedly accepted its terms.

Mr Lacy had worked for FW Farnsworth since September 2000.  His original contract did not contain any post-termination restrictive covenants.  Mr Lacy was promoted in April 2009 and the company sent him a new contract five months later.  The new contract contained additional benefits including permanent health insurance (PHI) but also new post-termination restrictive covenants.  Mr Lacy did not sign or return the contract to his employer or raise any objections.  He resigned in March 2012 to join a competitor and the company sought to enforce the restrictive covenants in his new contract, which prevented him from working for a competitor for six months following the termination of his employment.  Mr Lacy argued that he had not signed the new contract and was therefore not bound by its terms.

The High Court held that Mr Lacy was bound by the non-compete restriction, despite not having signed the new 2009 contract of employment.  Mr Lacy had voluntarily applied for PHI; a new benefit deriving from the 2009 contract.  The act of applying for that new benefit without any protest or reservation was indicative of his having accepted all of the terms of the new contract, including the post-termination restrictive covenants.  Although this case was decided in favour of the employer, had Mr Lacy not applied for PHI it is unlikely that he would have been bound by the new contract.  Employers should therefore note the importance of ensuring any new terms are signed by employees.