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18 January 2013

Employee bound by restrictions in unsigned employment contract

An employee was bound by non-compete clauses in a new employment contract he had not signed, because he claimed benefits which were solely referable to that contract, the High Court has ruled.

In the case of FW Farnsworth Ltd & Anor v Lacy & Ors, an employee had signed a contract of employment while still a junior employee at the company. It did not contain any restrictions preventing him from working for a competitor if he left.

Many years later, as a senior employee, he was asked to sign a new contract, but failed to do so. The new contract contained restrictions preventing him working for a competitor for six months if he left. It also contained provisions relating to benefits such as private medical insurance family cover, and a pension plan. Despite not signing the contract, he claimed the benefits he was entitled to under its terms.

He left and joined a competitor, and the employer claimed he had breached the non-compete clause. The employee argued that as he had not signed the contract it did not apply. His employer contended he had impliedly agreed to its terms by claiming the benefits under that contract.

The court agreed that he was bound by the non-compete clause because he had impliedly accepted the contract by applying for the private medical insurance, whether or not he had intended to be bound by the new terms.

However, the court ruled that joining the pension plan would not have been sufficient proof he had impliedly agreed to the contract, as he would have moved to the new scheme anyway given the employer's old final salary pension scheme was closing. Moving to the scheme was not an act which was solely referable to the contract, as required by law.

Employment law partner Jo Davis concludes: "Employers should ensure that employees asked to sign new contracts actually do so, that they return them, and that they are kept safely and securely by the employer."

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