Business Soapbox: Shirley Blair
As soon as an employee is promoted, a prudent employer should ensure that their contract contains adequate and up-to-date post termination protection. The Farnsworth case shows the importance of ensuring that employees sign contracts
A recent High Court decision (FW Farnsworth Ltd and another -v- Lacy and others ) has given employers a helping hand in protecting their businesses. The case states that an employee can be bound by post termination restrictive covenants even if they have not signed their contract.
But there is a big caveat. The employer must be able to show that the employee has acted in some way that unequivocally shows he considers himself to be bound by the contract.
The case provides a useful illustration.
Mr Lacy signed a contract in 2003. It did not contain any restrictive covenants.
He was issued with a fresh contract in 2009 which included restrictive covenants and access to private medical insurance (PMI) not previously available to Mr Lacy.
Mr Lacy did not sign the 2009 contract but equally nor did he register any objection to it. In 2010, Mr Lacy joined the pension scheme and applied for and received PMI cover.
He subsequently joined a competitor. The Court ruled that his actions in receiving the PMI cover showed that he had accepted the 2009 contract, and therefore the restrictive covenants, implicitly from the date he applied for the PMI cover.
There have been several cases recently which highlight the importance of regularly reviewing employees' restrictive covenants, particularly when they are promoted.
The courts judge covenants at the time they were entered into; not at the time the employer seeks to enforce them. Reasonable covenants can be easily rendered unreasonable because of changes in circumstances.
As soon as an employee is promoted, a prudent employer should ensure that their contract contains adequate and up-to-date post termination protection.
The Farnsworth case highlights the importance of ensuring employees sign contracts. If Mr Lacy had not applied for PMI, the Court would not have found the 2009 contract binding.
Equally, for the year before Mr Lacy applied for PMI, the employer had no restrictive covenant protection.
The Farnsworth case is therefore useful but one that employers would hope to only have to rely on as a last resort.
Shirley Blair is an Associate at A and L Goodbody