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When acceptance of contractual terms can be implied - restrictive covenants case

25 October 2012 #Employment

In the case of FW Farnsworth Ltd and another v Lacy and others the High Court has held that an employee was bound by the terms of a new contract of employment provided to him after he was promoted, but which he had not signed and returned to his employer. The new contract contained post termination restrictive covenants on which the employer sought to rely.

Mr Lacy was employed by Northern Foods Limited and worked at its subsidiary, FW Farnsworth Limited. He was initially employed in September 2000 as a technical graduate and was given various promotions during the following years. In particular in April 2009, Mr Lacy was formally promoted to site technical manager, having acted up in that capacity for several months previously. Some months later after this promotion took effect; Mr Lacy was sent a new contract (the 2009 contract). The 2009 contract contained post termination restrictive covenants, however Mr Lacy did not sign or return the contract to Northern Foods.

The 2009 contract also provided for additional benefits not available to Mr Lacy under his previous contract such as the right to join the Northern Foods` Self Invested Pension Plan, a defined contribution pension scheme and the right to apply for private medical insurance (PMI) cover for both Mr Lacy and his family. Mr Lacy subsequently joined the defined pension scheme and applied for and received PMI family cover.

In March 2012, Mr Lacy resigned in order to join a competitor of Northern Foods. Proceedings were brought against Mr Lacy in the High Court to enforce the post termination restrictions in the 2009 contract, which prohibited him from working for a rival business and soliciting defined customers in the six months following the termination of his employment. An interim injunction was granted. Mr Lacy argued that because he had not signed or accepted his latest contract, he was not bound by the restrictive covenants.

The court held that Mr Lacy’s acceptance of the new contract could be implied by the fact that he applied for private medical insurance (PMI) cover that was only available to him under it. He was therefore bound by the terms of the new contract from the date he applied for the PMI.   

This case highlights the importance for employers of ensuring that existing employees actually sign and return new contractual terms issued following a change in role or a promotion.

Clarkslegal, specialist Employment lawyers in London, Reading and throughout the Thames Valley.
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