The High Court has held that an employee was bound by the terms of an unsigned contract of employment (including, crucially, its post-termination restrictions) because his acceptance of the contract could be inferred through his conduct: he had applied for some benefits which were only available under the unsigned contract.

Background

This case considers when an employee's acceptance of contractual terms can be implied or inferred, in the absence of express consent. In these circumstances it is for the employer to prove that the employee is bound by the relevant contractual terms.

The Court of Appeal has previously held that in order to show that the employee's consent to the contract should be inferred the employer must show an “unequivocal act implying acceptance”: (Khatri v Cooperatieve Centrale Raiffeisen-Boerenleenban).

The courts are reluctant to imply or infer acceptance from purely continuing to work (particularly where the contractual term in question is disadvantageous to the employee), as the test is to show that the continuing to work was "only referable" to having accepted the new terms.

In reaching a decision in cases such as these the courts must look at the surrounding facts and circumstances objectively; the question is not what the employee's subjective intention is, but what inferences can be drawn from what the employee did (or did not do).

FW Farnsworth Limited & Northern Foods Limited v Lacy & Ors

Northern Foods was the former employer of Mr Lacy. It had brought claims against Mr Lacy and other defendants about an alleged misuse of its confidential information, and a breach of the post-termination restraints contained in Mr Lacy's contract of employment. Northern Foods had obtained an interim injunction against Mr Lacy and the claims were listed for a full trial. However, in the meantime he raised a preliminary point - which was the subject of this particular decision - which was whether or not Mr Lacy was bound by the post-termination restrictions, which were contained in a contract of employment he had never signed.

Mr Lacy joined Northern Foods as a graduate and was promoted through the ranks. In April 2003 he signed a contract of employment (the "2003 Contract"). He was promoted to Site Technical Manager in April 2009, and received a pay rise then. In around September 2009 he was sent a new contract (the "2009 Contract") which he did not sign or return.

The question for the Court was: had Mr Lacy become bound by the 2009 Contract with Farnsworth, or did he remain bound by the 2003 Contract, which did not contain any restrictions.

Northern Foods argued that after receiving the 2009 Contract Mr Lacy applied for pension and private medical benefits which were only available under it, and that his conduct in applying for those benefits implied acceptances of its terms.

Mr Lacy argued that neither of these two actions were unequivocally referable to the 2009 contract, and therefore acceptance could not be implied. In relation to the two benefits he said:

  • he was forced to move to the new pension scheme described in the 2009 contract (along with all others of senior management), and did not voluntarily elect to do so;
  • he only made the application for PMI because he found out others of his Grade (E) were receiving the benefit, and asked his manager to arrange for him to have it.

The High Court's decision

The Judge held that Mr Lacy was bound by the 2009 Contract, and therefore the post-termination restrictions, because his application for PMI was an unequivocal act referable only to the Contract of Employment, and therefore through the PMI application he had impliedly accepted the 2009 Contract terms.

In reaching this decision he observed:

  • The legal source of the PMI benefit was key to determining this issue. The source of the right to PMI benefits was not a discretionary power of Mr Lacy's manager, or a right arising simply because Mr Lacy had reached a certain Grade: it was a right derived from the contract.
  • Mr Lacy had read, and kept a copy of the 2009 Contract but did not register any protest to its terms; he was an intelligent man, and it was implausible of him in his evidence to downplay the significance of his having done so. It was likely that, having read the contract, he was made aware of the new benefits available to him under it.
  • The fact that shortly before his resignation Mr Lacy requested a copy of his 2009 Contract was significant. Mr Lacy said he had 'forgotten' about the 2009 Contract after receiving it - his request for a copy of it suggested that he was aware of its existence and knew he could be bound by it..
  • Mr Lacy's joining of the defined contribution scheme was not voluntary and therefore not clearly and uniquely referable to acceptance of the 2009 Contract terms; it was referable to a mandatory policy.

Comment

Although this may be a welcome decision for employers, in fact the former employers in this case might be said to have "got lucky". The only action which lead to the Court implying acceptance of the contract, and therefore the post-termination restrictions, was his application for PMI benefits under the contract. Had he not made that application then it looks like the Court would have found the contract, including the restrictions, would not have been binding on the employee. This case highlights the importance of actually ensuring that contracts of employment are expressly agreed (i.e. signed), particularly where the contract contains important terms, such as post-termination restraints, which an employer may later wish to rely upon.