the unsigned contract in the desk drawer bites back

Posted on November 27, 2012 by Martin Malone

It’s a familiar scenario: after a promotion, an employee is sent a new contract to sign. It includes some new benefits, but also there are some post termination restrictions in there. The employee looks it over, perhaps, then tucks it away at the back of a drawer to deal with later, or with no intention of ever signing it. Fast forward a few years – that employee has left his job, and is working for a new employer. Can his old employer enforce those post termination restrictions, even though the employee never expressly agreed to be bound by them?

The question of whether a contract of employment which is unsigned is nonetheless effective is one that is often asked and it is therefore very helpful to have some guidance from the Chancery Division of the High Court. Often much emphasis is placed on the obligation for an employer to provide a written statement of main particulars of employment within eight weeks from the start of the employment. Failure to do so gives the employee the right to complain to an employment tribunal and to ask the tribunal itself to specify the written particulars. If combined with another or other claim(s) there may also be a right to compensation. However, what is generally far more important for an employer is whether it can rely on the terms of a contract which has been issued to an employee but which has not been signed

According to Mr Justice Hildyard in FW Farnsworth Ltd & Anor v Lacy & Ors the employee may be bound by the terms in the contract.

Paul Lacy and Maria Yuste worked for FW Farnsworth Limited and Northern Foods Limited. It was alleged that during the course of their employment they passed confidential information to a competitor, Pooles of Wigan Limited. Additional defendants, Neil Court-Johnston, Bobella Limited and Joanne Kenedy (sic) were alleged to have participated in the conspiracy.

In 2009 Mr Lacy was issued with a contract which contained restrictive covenants which, for example, prevented him from working for a rival business or soliciting defined customers for a period of six months following the termination of his employment. He had also been issued with a contract in 2003 which did not contain any such restrictions. The key question was whether he was employed under the 2003 contract or the 2009 contract. He had started work in 2000 and signed the 2003 contract when it was issued to him. In 2009 he progressed to the position of Site Technical Manager. Some time after this appointment, in September 2009, he was issued with the 2009 contract which he neither signed nor returned.

The employer maintained that he had impliedly accepted the terms of the 2009 contract because he applied for and received additional benefits which were only available under the 2009 contract, specifically a move to a defined contribution pension scheme and medical benefits for him and his family. In response Mr Lacy maintained that neither of the matters were so unequivocally referable to the 2009 contract as to imply that he was bound by its terms.

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Court of Appeal critical of heavy handed attempt to injunct former employee

Posted on March 23, 2012 by Martin Malone

In Caterpillar Logistics Services (UK) Ltd v de Crean, the Court of Appeal has upheld the refusal of an injunction application against a former employee.

Mrs de Crean had worked in a senior capacity and had a contract which included a confidentiality agreement but did not include terms restricting her activities after her employment ended. Three weeks after she resigned to join another company, the employer, with no prior warning, sent a long letter to her threatening legal proceedings. It made allegations of misconduct and demanded that she give undertakings not to use or disclose confidential information as they defined it, and also agreeing not to carry out certain areas of work in her new job. She was not prepared to give undertakings in these terms and the employer attempted to seek an injunction, first in the High Court and then in the Court of Appeal.

Both courts refused the application, and were highly critical of the employers’ over-reaction to the situation and their high-handed actions Continue reading →

post termination covenants – non-competition – period of restriction

Posted on May 17, 2010 by Martin Malone

[picappgallerysingle id="7776916" align="left"]Many employers are worried about employees leaving to work for a competitor and therefore seek to impose restrictions on what the employee can do after termination of employment. These post-termination covenants are clearly in restraint of trade and therefore contrary to public policy. However, they are permitted if they can be shown to be reasonably necessary to protect legitimate business interests. The protection should be no more than is necessary so restrictions which are too wide in area or too long in duration cannot be enforced. Consequently, there is a balancing act required in order to achieve effective restrictions.

In Phoenix Partners Group LLP -v- Maurice Asoyag (21 April 2010) the High Court was asked to consider whether restrictions for a period of six months should be enforced. Mr Asoyag began working for Phoenix in July 2009. He had previously worked for other financial institutions including Merrill Lynch, Nomura and Credit Suisse. His job with Phoenix included brokering equity derivatives related to various indices including in particular the FTSE, EuroStoxx and DAX as well as cash equities derivatives.

On 8 December 2009 he handed in his notice and was placed on three months’ garden leave (pursuant to his contract of employment) so the practical date of termination of employment was 7 March 2010. Mr Asoyag had been offered employment with GFI Holdings Limited with his employment scheduled to commence on 8 March. He asked to be released from his restrictive covenants but was refused and he nonetheless started working for GFI on 8 March. On 9 March solicitors acting for Phoenix wrote to Mr Asoyag and asked him to provide undertakings to observe the restrictions. He refused. On 25 March Phoenix applied for an injunction.

The restrictions in this case are in a very standard form:

12.1 The Employee acknowledges that during the course of his employment with the Company, he will receive and have access to Confidential Information and accordingly he is willing to enter into the covenants set out in this Clause 12 in order to provide the Company and any Group Companies with what he considers to be reasonable protection for those interests.
12.2 The Employee shall not, in any Capacity, save in respect of a Permitted Interest or with the prior written consent of the Members (which shall not be unreasonably withheld), for a period of six months (subject to Clause 12.6) from the Termination Date within the Restricted Area carry on or be concerned or engaged or interested in any part of a trade or business which competes with any part of any trade or business carried on by the Company in which the Employee shall have been actively engaged or involved at any time during the Period…
12.3 The Employee shall not in any Capacity for a period of six months from the Termination Date (subject to Clause 12.6) in competition with the Company or any Group Company and in relation to the business activities of the Company in which the Employee has been engaged or involved during the Period:

(a) solicit approach or offer goods or services to or entice away from the Company any person, firm or company who was either

(i) a client or customer of the Company during the Period with whom the Employee has been actively engaged or involved by virtue of his duties under this agreement during the Period; or

(ii) a prospective client or customer of the Company with whom or which as at the Termination Date there are negotiations ongoing with a view to him or it becoming a customer or client of the Company or any other Group Company and where the Employee has been actively engaged or involved in such negotiations in the performance of his duties under this agreement;

(b) deal with or accept custom from any person, firm or company who was either

(i) a client or customer of the Company during the Period with whom the Employee has been actively engaged or involved by virtue of his duties under this agreement during the Period; or

(ii) a prospective client or customer of the Company with whom or which as at the Termination Date there are negotiations ongoing with a view to him or it becoming a customer or client of the Company or any Group Company and where the Employee has been actively engaged or involved in such negotiations in the performance of his duties under this agreement …

The High Court Judge noted that normally, with such an application, there would be no need to do more than show that there was a serious issue to be tried in relation to the breach and the issue of enforceability. However, the period of restriction being sought in this case was less than three months so that there was no real prospect of a trial taking place before the expiry of the restrictions. It was therefore necessary to consider whether injunctive relief would be granted at trial. In this context the period of garden leave was significant because it meant that Mr Asoyag had not been “actively engaged or involved” with protected activities in those three months and it is clear from the judgment that the period of the restriction had to be reduced by the period of garden leave, hence the resulting period of less than three months.

There was significant doubt about whether Mr Asoyag’s activities working for GFI would compete with Phoenix in specific markets in the relatively short remaining period. Accordingly the application for injunctive relief was refused.

The decision is a useful reminder that restrictions will not be enforceable unless they can be shown to be necessary. It is also important to consider the potential overlap between the protections sought through garden leave provisions and post-termination covenants. At first glance, most people would have regarded the restrictions in this case as reasonable in terms of area and duration but it does not follow that relief will be granted.