In our October bulletin we considered the case of Patsystems Holding v Neilly, which served as a reminder of the need to consider whether the restrictive covenants should to be reaffirmed or updated when promoting an employee. In the case of FW Farnsworth Ltd and another v Lacy and others the employee was indeed provided with a new contract on promotion containing new restrictive covenants. The question was whether the covenants could be enforceable where the contract was not signed.

Mr Lacy was originally employed as a Technical Graduate in 2000, three years later he was issued with a contract, which did not contain any restrictive covenants. In April 2009, after he had been acting up for a while, he was promoted to the role of Site Technical Manager, a Grade E position. Six months after he had been promoted (tut tut) he was issued with a new contract which contained the restrictive covenants that were applicable to senior staff (the "2009 Contract"). He read the contract, apparently had some concerns over the restrictive covenants (which he did not raise) and put it in his draw never to be seen again (well until he ended up in Court).

The question was whether it could be implied from Mr Lacy's behaviour that he had accepted the terms of the 2009 Contract (including the restrictive covenants). The legal test is whether his behaviour was "only referable" to acceptance of the contractual terms. After receipt of the 2009 Contract Mr Lacy applied for private medical insurance for himself and his family, a benefit which he was granted in the 2009 Contract. Mr Lacy argued that he was told that he had a right to this benefit because he was a Grade E employee and was therefore not because he had agreed to the terms of the 2009 Contract. The Judge disagreed and concluded that the 2009 Contract was the source of the Grade E benefits, and that by taking up the benefit, he had agreed to be bound by the 2009 Contract including the restrictive covenants. Interestingly, the Judge also took into account that Mr Lacy had requested to see a copy of the 2009 Contract upon his resignation.

This case highlights the advantage of having more beneficial terms for senior employees where the employer is seeking to impose more onerous contractual terms. However, it would be risky to rely upon this tactic over obtaining an actual signed contract. An employer should make sure the employee signs on the dotted line and do everything it can (withholding promotion, diary reminders, follow up meetings, threats of violence etc) to ensure that the employee returns the signed contract.