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| EMPLOYMENT NEWS - OCTOBER (1) 2018 |
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| RESTRICTIVE COVENANTS - SIGNED CONTRACTS & CONSIDERATION |
The High Court decision in Tenon FM Ltd v. Susan Cawley, B38 Support Services & Ors [2018] EWHC 1972 (QB) deals with an attempt to enforce restrictive covenants against a departing employee when there is no evidence of a signed contract, nor consideration.
Background
Tenon is a good example of an employee being promoted up through the ranks into a senior position, whereby the employer periodically attempts to update restrictive covenants in order to reflect the increased status - but in this case unsuccessfully.
C commenced her employment with T (a contract cleaning company) in May 2008. Her contract of employment was unsigned (no signed copy could be found), and it contained 6 month restrictive covenants dealing with both non-solicitation of customers and colleagues, as well as non-competition.
In December 2011 C was promoted to Regional Operations Director. T contended that a new “2011” contract was issued as a result. It was also found to be unsigned and, as per the 2008 contract, no signed copy could be located. This 2011 contract contained new and more onerous restrictive covenants to reflect C's increased seniority.
After proceedings had been issued T found a further contract (the “2012” contract). The only difference between the 2011 and 2012 contracts was that the latter had introduced a right to terminate C’s employment after a defined period of sickness.
The 2012 contract was emailed to C requesting her to execute it and then return a signed copy. It would appear C never signed the 2012 contract.
In May 2016 C was promoted again to National Operations Director. By now C was a member of the senior management team reporting to the CEO.
In August 2017 T entered into a services contract with the Second Defendant, B32 to undertake the cleaning for B32’s customers. B32 was a facilities management company.
In May 2018 C tendered three months’ notice of her resignation making specific reference “..to the terms of her contract of employment”. In doing so, however, C did not make reference to any of the three employment contracts. Shortly afterwards, B32 also terminated its services contract with T.
It then emerged that C had resigned in order to join B32. In response, T sought injunctive relief in the High Court.
At the hearing T contended that, in resigning, C had relied upon her 2012 contract or, alternatively, her 2011 contract. The judge noted that C would have seen all three employment contracts during her employment with T. C argued that she hadn’t relied on any particular contract, rather she had given three months’ notice on the basis that she thought it was just the industry norm.
The Judgment
The Signed Contract Point
As a matter of law where there is contract of employment unsigned by the employee, then provided the employee has has worked in accordance with its terms, a Court is likely to enforce it, save it may decide not to enforce any restrictive covenants.
Counsel for T made the point that an employer’s offer to contract on specific terms need not necessarily only be binding provided the employee had signed the contract of employment, rather it could be inferred from the employee’s conduct (for example by not objecting to a particular term of the contract). In response to this argument, the Court made the point that there is probably a difference where there is a new term which might have an immediate effect on the employee, as against one whereby the effect only comes into play (if at all) post termination.
Despite some inferences that C may have accepted her contract of employment (for example there was an email exchange regarding the 2011 contract whereby C had asked HR to remove a sickness clause), the Court was not satisfied that the restrictive covenants in any of the three contracts in question were incorporated and, therefore, binding on C.
Consideration
It is trite law that any variation to an employment contract needs to be supported by fresh consideration. It means, therefore, that a prudent employer seeking to introduce restrictive covenants (or update them) will do so either as part of a promotion (the consideration normally being represented by a number of factors including a pay rise, the additional benefits and the promotion itself), or it will tender a one-off payment.
In this case there was no evidence that the 2011 and 2012 contracts were supported by consideration.
Comment
This decision bears testament to the fact that, in order to have any chance of enforcing restrictive covenants:
- The best time to introduce restrictive covenants is when an offer of employment is made to a prospective employee and he/she is requested to sign and return a contract of employment as a condition of that employment;
- If an employee is promoted then that is a sensible time to review the need to update restrictive covenants. Indeed, the promotion should be conditional on the employee agreeing to the revised contract and restrictive covenants;
- If there is just a simple updating of restrictive covenants, then there must be consideration even if the employer is planning to execute the contract as a deed [NB: execution by way of a deed normally precludes the need for consideration but restrictive covenants will always be an exception to this]; and
- Always get a signed copy of the employment contract and any revisions, and keep on file.
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| CONTACT: Christopher Filor |
| EMAIL: cfilor@filorsolicitors.co.uk TELEPHONE: 01647 231475 |
| MOBILE: 07891 055856 www.filorsolicitors.co.uk |
| This publication is not intended to provide legal or other professional advice and should not be relied upon as such. Readers should take legal advice before applying the information contained in this briefing. |
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