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24th October 2012

Restrictive covenants in unsigned contract held to be enforceable

In the recently decided case of FW Farnsworth Ltd and another v Lacy and others, the High Court was asked to consider whether an employee should be bound by the restrictive covenants contained in a new contract provided to him after promotion that he had not signed and returned.

The facts of the case considered by the High Court were as follows:- Mr Lacy was employed by Northern Foods Limited and worked at its subsidiary, FW Farnsworth Limited. Mr Lacy was initially employed in September 2000 as a technical graduate and was later promoted to quality assurance manager. In around April 2003 he signed his first contract of employment with Northern Foods. The contract did not contain any post termination restrictive covenants.

In April 2009, Mr Lacy was promoted to site technical manager, having acted in that capacity for several months previously. At the end of September 2009, Mr Lacy was sent a new contract. The 2009 contract contained post termination restrictive covenants. Mr Lacy did not sign or return the contract to Northern Foods, although he did not raise any objections to the contract with Northern Foods.  The 2009 contract also provided for additional benefits not available to Mr Lacy under the 2003 contract, which included the ability for him to join a defined contribution pension scheme and to apply for private medical insurance (PMI) cover for both himself and his family.

Mr Lacy subsequently joined the defined pension scheme in around March 2010 and applied for and received PMI family cover from around April 2010.

In March 2012, Mr Lacy resigned in order to join a competitor of Northern Foods. Northern Foods brought proceedings in the High Court to enforce the post termination restrictions in the 2009 contract, which prohibited Mr Lacy working for a rival business and soliciting defined customers in the six months following the termination of his employment.

The High Court held that Mr Lacy was bound by the 2009 contract and therefore the post termination restrictive covenants contained within it.   To this end, the court stated that Mr Lacy’s reading of the 2009 contract would, at the very least, have “alerted him to some redefinition of his relationship in legal terms” and his actions in voluntarily applying for the new PMI cover not previously available to him, without any form of protest or reservation, was “an unequivocal act referable only to him having accepted all the terms of the 2009 contract from the date of that application”.   Accordingly, Mr Lacy was therefore bound by the terms of the 2009 contract from the date he applied for the PMI cover.

Although the employer was able to rely on the restrictive covenants within the contract, the case highlights the importance of ensuring that any new contract (especially those containing post-termination restrictions) is actually signed and returned by an employee. In this case, if Mr Lacy had not applied for the PMI, it seems that the court would not have found that he was bound by the 2009 contract and therefore the post termination restrictions contained within it.

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