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Problems enforcing an unsigned contract

30th November 2018

A common problem faced by employers is how they deal with an employment problem where the employee in question has not signed his or her contract of employment.

The requirement set out in the Employment Rights Act 1996 is that employers provide their employees certain written particulars of employment within the first two months of employment. There is no statutory obligation that the employee signs that document. It is also clear from the relevant case law that the written particulars may or may not cover all the terms and conditions of the employment. The obligation under the Act is that the details of certain matters are provided. It reads like a shopping list, covering most of the basic points you would expect- such as amount or rate of pay, hours of work, place of work, etc. However, for many businesses there are additional matters of great concern that they will want covered in the written contract of employment, such as matters relating to the development and use of intellectual property, confidentiality, and post termination restrictions on poaching customers or staff.

Quite often an employer will provide the employee with the draft contract of employment, or written particulars of employment, and then forget about it, or simply put it on the back burner due to the immediate pressing need to get on with the daily demands of their business. This course of action can easily result in the employee never actually signing and returning the written contract of employment. While the working relationship between the employer and employee is good, the failure to receive the signed contract back from the employee is generally overlooked, or not seen as a problem. However, difficulties will sometimes arise later, when there is a dispute or disagreement between the individual employee and the employer, or indeed after the employment has ended- particularly if the individual leaves to join a direct competitor, or set up business in competition with their former employer.

Sometimes an employer will say that the terms of the contract have clearly been known by and agreed by the employee, even though the document was not actually signed by that employee. Many employers will assume that the simple passage of time combined with the continued work by the individual employee will be enough to demonstrate that the employee agrees to the terms contained in a written contract that was never signed by them.

A recent case in the High Court highlights the importance of having signed written contracts of employment, in particular where the contracts contain provisions that are detrimental to the employee, such as post-termination restrictions. The case in question also illustrates the need for employers to keep evidence of the agreement by any employee to any changes to the contract.

The case, Tenon FM Ltd v Cawley involved a Ms Cawley. She had started employment with Tenon in 2008. Tenon stated in the case that when Ms Cawley was promoted in 2011 she was given a new contract of employment. This contract included more onerous restrictions than had been contained in the 2008 contract. In 2012 a further new contract was issued, but containing the same post -termination restrictions as those found in the 2011 contract.

Despite searching for then, Tenon were unable to find a copy of any of the contracts. Ms Cawley claimed this was simply due to the fact that she had refused to sign the contracts as she had not agreed to the post-termination restrictions.  

Ms Cawley eventually resigned from Tenon in May 2018, after reached the position of Operations Director, a role within the senior leadership team. 

Tenon discovered later that Ms Cawley had attempted to persuade a colleague to join her at her new employer. At this point it decided to seek an injunction to enforce the restrictive provisions found in the written contract (of which no signed copy could be found).

The court was faced with the question of whether or not Ms Cawley was bound by the terms of a written contract that she did not appear to have signed. A letter was written on behalf of Tenon expressing their concerns over her conduct and giving her just 12 hours to respond. They indicated that legal action would be taken against Ms Cawley regardless of any response from her in any event! 

Tenon were unable to show that they had provided any sort of consideration (egs, extra pay, increase in benefits, bonus or increased holiday entitlement) for having a new written contract in 2011 or in 2012.

In considering the case the court noted its surprise that Tenon, despite having a large HR department and an experienced HR manager, was unable to locate any signed copy of the contract of employment. The court did have reservations about the evidence that Ms Cawley gave, but Tenon did not provide any evidence from the HR manager to contradict Ms Cawley’s account.

The court accepted that in some circumstances the acceptance of contractual terms could be inferred from the employee continuing to provide their work to the employer or other conduct. But, the case law relied on by Tenon indicated that it is only possible to infer an employee has agreed to a contractual change by continuing to work in circumstances where the change to the contract has an immediate effect, (or if additional “consideration” is given to and accepted by the employee). The court refused to accept that the simple continuation of work amounted to “consideration” to make the new, restrictive provisions contractually agreed, as they would not take any practical effect until after the employment ended, and there was no copy of the contract signed by Ms Cawley available to the court.

Even though the court rejected the case on the basis that Tenon was unable to show that there was a contractual agreement with Ms Cawley to the post-termination restrictions, it went on to note at least two other members of Tenon’s senior leadership team as well as two other senior employees di not have any post-termination restrictions in their contracts of employment. This fact meant that the restrictive provisions may themselves not be reasonable. The discrepancy also begged the question of whether Tenon had a legitimate business interest to protect.

The court decision in this case provides a number of warnings to employers that seek to include restrictive post termination provisions in their staff contracts, as well as guidance on the way in which the courts will consider and interpret the contractual terms of an employee that has not signed the written contract of employment.

1 Employers should ensure that employment contracts are signed by all their employees (and especially senior employees), and put in place steps to keep that under review and addressed promptly. Obviously, an employer should discuss any concerns that an individual may raise over the proposed terms of a written contract- but the sooner those concerns are addressed and resolved the better it is for both parties.  

2 It will not be easy to convince any court (or Employment Tribunal) to enforce any post-termination restrictions contained in an unsigned contract.

3 It is important that employers are consistent in their treatment of staff with regard to the nature and extent of post termination restrictions. This case illustrates the fact that if employees on a similar level, who present similar risks to the employer’s business after leaving, have different post-termination restrictions in their contracts, then that inconsistency may undermine an assertion that the employer has a legitimate interest to protect in using restrictions against a particular employee.    

4 An employer that has a dedicated HR department may find itself under close scrutiny in arguing over the application of a particular version of a contract of employment with a particular employee. The courts and Tribunals are likely to have expectations over the better storage and access to the correct versions of any employee contracts, and that their records are up to date etc.   

5 If an employer wants to introduce new terms, in particular any which are detrimental to the employee (such as post termination restrictions) they should ensure that some obvious consideration is given in return – egs. Pay rise, extra holiday entitlement, a bonus payment)    

If you need any further advice on any matter raised in this article do not hesitate to contact us at Hallett Employment Law Services Ltd.

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