Employee Bound by Restrictive Covenants in Unsigned Contract

An employee who failed to sign a new employment contract containing restrictive covenants issued to him on promotion was still bound by the covenants.  He could not therefore join a competitor of his employer following his resignation.

In FM Farnsworth v Lacy, L was promoted to a management position in April 2009.  Five months later he was issued with a new employment contract which contained post-termination restrictive covenants.  His previous contract contained no such restrictions.  The new contract also entitled him to apply for family private medical cover, which had not been available to him previously. 

L did not sign the contract.  He looked at it briefly and then filed it in his desk drawer.  He did not raise any objections to the contract and in April 2010 he applied for and received family private medical cover.  He subsequently resigned in order to work for a competitor and argued that he was not bound by the restrictive covenants as he had not signed the contract.  His employer argued that his acceptance of the new contract could be inferred from the fact that he had applied for family medical cover.

The High Court agreed with the employer that L had impliedly accepted the new contract and he was therefore bound by the restrictive covenants.  In order for acceptance to be implied, it was necessary to point to conduct by L which was solely referable to his acceptance of the new terms.  His application for family private medical cover, without any protest or reservation, which was only available to him under the new contract was such an act.

This case reinforces the need for employers to ensure that employment contracts are always signed and returned by employees.  The employer was fortunate in this case as it was able to point to the fact that L had done something which was only referable to his acceptance of the new contractual terms i.e. he had applied for family medical cover.  Other employers may not be so lucky – the mere fact that an employee has continued to work after a new contract is issued will generally not be sufficient, as continuing to work will generally be equally consistent with working under the old terms.