FW Farnsworth Ltd and another v Lacy and others  EWHC 2830 HC
contracts of employment | unsigned contracts | contractual terms
The High Court has held that an employee’s application for medical cover under the terms of his new, but unsigned, contract of employment meant that he was bound by its terms, including restrictive covenants.
Implications for employers
- This case means that, where an employee has not signed his or her contract of employment, but has applied for benefits provided by it, he or she will be bound by the whole of the contract.
- However, employers should always insist on written confirmation that an employee agrees to a new contract of employment.
- The easiest way to do this is by ensuring that the employee signs and dates the contract in duplicate. The employer should then retain one copy for future reference.
In 2000, Mr Lacy was employed by FW Farnsworth Ltd as a technical graduate. He agreed to, and signed, the terms of a contract of employment. This contract provided for medical cover for him but not his family, and contained no restrictive covenants. It also entitled him to become a member of a voluntary, contributory pension scheme.
On 1 April 2009, he was formally promoted to site technical manager, having acted in that capacity for some months. This was a "grade E" position under the company’s employment structure. The company did not provide him with a new contract (the "2009 contract") until September 2009. Mr Lacy did not sign the contract, and it was not expressly suggested to him that his promotion was contingent on him accepting the terms of the contract.
The 2009 contract contained restrictive covenants applicable during the six months after the termination of his employment. These restricted him from, for example, working for a rival business and soliciting defined customers. After Mr Lacy was provided with the 2009 contract, he read it and "particularly focused" on the restrictive covenants. He did not express any objection or protest regarding those restrictions or any other of the contract’s terms.
The 2009 contract entitled Mr Lacy to new benefits, in particular medical cover for him and his family and access to a defined-contribution pension scheme. The only manner in which Mr Lacy could obtain these benefits was by application to the company - they were elective and not automatic, and this method was expressly required under the terms of the 2009 contract. In due course, Mr Lacy applied for, and received, both benefits. Mr Lacy retained his copy of the 2009 contract in his desk drawer. In February 2012, Mr Lacy asked the company to email him a copy of the 2009 contract. He did so because he wanted to look at its terms - and his possible legal exposure - when considering his position on leaving the company.
In March 2012, Mr Lacy resigned to join a competitor. The company (and another claimant) brought proceedings against Mr Lacy and another former employee regarding the alleged collation and misuse of confidential information belonging to it. A key issue in these proceedings was whether or not Mr Lacy was bound by the restrictive covenants in the 2009 contract. A High Court hearing took place to determine whether or not Mr Lacy had impliedly accepted the terms of the 2009 contract, given that he had not done so expressly.
The company argued that Mr Lacy’s conduct in applying for and receiving benefits that were available only under the terms of the 2009 contract - medical cover for him and his family, and membership of the defined-contribution pension scheme - comprised acts that necessarily implied acceptance of the terms of the contract as a whole. The burden was on the company to establish that Mr Lacy was bound by the 2009 contract and, therefore, the restrictive covenants in it. Case law has established that the company had to show an "unequivocal act implying acceptance" of the contract.
The High Court observed that this case concerned a mixture of advantageous (the benefits) and disadvantageous (the restrictive covenants) contractual terms, and whether or not the invocation of the former necessarily connoted acceptance of the latter. The High Court stated that, in cases like this, the party alleging implied or inferred acceptance must show that the benefit invoked was only available pursuant to the contract in question, and that that invocation was unequivocal.
Although Mr Lacy’s evidence was that he had never intended to accept the terms of the 2009 contract, the High Court stated that his subjective intention was not only not determinative, but legally not relevant: the issue was the inference to be drawn from what he did. The High Court rejected Mr Lacy’s argument that the benefits he had invoked did not have their source in the 2009 contract, stating that the fact that the benefits were available to all grade E employees did not assist in determining their legal source. Grade E employees enjoyed those benefits because grade E contracts provided for them.
The High Court stated that on a "step change of grade", an employee’s relationship with his or her employer "obviously and materially changes". This change is "ultimately defined in legal terms" by a new contract: Mr Lacy was provided - albeit late - with a new contract that redefined his relationship with the company. The High Court held that, after being provided with the 2009 contract, and especially after he had read it, Mr Lacy must have appreciated that any new benefits to which he was entitled would have their source in that contract.
The High Court found that Mr Lacy’s joining of the defined-contribution pension scheme was not voluntary, having accepted evidence that the joining of this scheme was mandated by the company for all senior management. Mr Lacy’s act of joining the scheme was not, therefore, sufficiently clearly and uniquely referable to acceptance of the terms of the 2009 contract so as to render him bound by them. By contrast, the High Court held that Mr Lacy’s application for medical cover in the form required by the 2009 contract, after he had read its terms - "however speedily", and "without expressing any protest or reservation" - was an unequivocal act referable only to his having accepted all the terms of the 2009 contract from the date of that application.
The High Court held that, even if Mr Lacy had - contrary to its finding - considered that the benefits in question were available as a result of his new grade (rather than the contract), the legal analysis that the benefits were contractual, together with the fact that they were expressly provided for in the 2009 contract, meant that their invocation by Mr Lacy was necessarily referable to the contract. The High Court held that Mr Lacy became bound by the terms of the 2009 contract when he applied for medical cover in March/April 2010.
- Get more information on contracts of employment in the XpertHR FAQs section, which answers the following questions:
- The XpertHR policies and documents section includes two model contracts of employment:
Case transcript of FW Farnsworth Ltd and another v Lacy and others (on the BAILII website)