An Unsigned Contract Is Not Necessarily Fatal

If an employee does not sign his or her contract of employment, it does not necessarily mean that he or she is not bound by the terms of it or any post termination restrictions in it, as the recent case of (1) FW Farnsworth Ltd (2) Northern Foods Ltd v Paul Lacy & Ors confirms. Voluntarily accepting a benefit under a contract can be taken as acceptance of its overall terms, including any post-termination restrictions.

Mr Lacy was initially employed by FW Farnsworth Ltd ('Farnsworth') under a contract he signed in 2003 which contained no post-termination restrictions. In 2009, he was promoted to a senior management position and was given a new contract containing restrictions preventing him from working for rival businesses or soliciting customers. He looked briefly at the document then put it, unsigned, in his desk drawer. In 2012, when Mr Lacy resigned intending to join a rival company, Farnsworth applied to court for an interim injunction to enforce the restrictions and prevent him joining a competitor.

Mr Lacy argued that he was not bound by the terms of his new contract as he had never signed it. However, after being given the new contract, he had applied for benefits under it which had not been available under his old contract. These included private medical insurance and a new defined contribution pension scheme.

The court held that an employee's relationship with his employer was necessarily defined by contract and Mr Lacy's promotion meant that his relationship with his employer had materially changed. It found that the source of the benefits was contractual; Mr Lacy had read the contract and appreciated the new benefits available under it. In proceeding to voluntarily apply for the benefits not previously available to him, Mr Lacy had accepted the legal implications of the new relationship and the terms of the new contract, including the post-termination restrictions. He was therefore found...