On a daily basis, I ask either my employee clients or my employer clients for a copy of the contract of employment. In the majority of cases I’m sent a document that is not signed, and in some cases, no one can even find a copy of the document, although they’re sure it exists….somewhere.
The recent case of Tenon FM Limited v Cawley emphasises that failure to obtain a signed copy or keep it for evidence, can be fatal in circumstances where an employer is trying to enforce a restrictive covenant.
In the case the employee had made their way up through the company and was promoted a number of times to Director level roles, finishing up reporting directly to the CEO. She was employed for a 10-year period. Her initial contract of employment contained some restrictions, but a later version contained even more restrictive covenants. Her employer was concerned when she left for a new job elsewhere and attempted to persuade a colleague to join her. The employer thought a high court injunction would prevent her, and the new company, from enticing that person for going to work for them.
In such cases the matter would never reach a full trial during the lifetime of the covenant, so the judge has to decide whether it would be likely to succeed at a trial in determining whether it is reasonable to grant the injunction sought.
The judge was scathing at the employer’s failure, despite having a large HR department and a system of personnel files, to lay their hands on a signed copy of the contract. The employee herself gave evidence that she did not sign the later contract because she objected to the covenants within it. The employer had suffered a change in HR personnel but did not contact the former member of staff to provide evidence.
The employer relied on case law that suggests you can infer that an employee agrees to contractual changes by carrying on in work, where the change has an immediate impact on them. This might work with something like a change in commission structure, which would affect the employee the very next month. However, in a case where the changes take effect only once the employee leaves, the judges are less likely to enforce such case law. The judge specifically referred to an academic textbook on employee competition and specifically excepted restrictive covenants, and explained that an unsigned contract may mean that the restrictive covenants would not be enforced by the court.
On this basis the judge refused to grant the injunction as it felt that the employer would fail at a trial.
The judge also took into account the failure of the employer to give any consideration for the change in contract that had taken place. It is not enough to rely on the employee continuing in work and the employer continuing to employ the employee. This was particularly the case when more severe restraint of trade was introduced. The judge also noted that amongst the senior management team, there were others on the team who did not have the same restrictions despite having the same access to confidential information and customers. It wasn’t necessary for the judge to then comment on the reasonableness of the restrictions: he felt that this issue called the whole thing into question.
This case highlights that we should all be ensuring that when there is a change in covenants perhaps on promotion, that part of the new salary increase is allocated to those covenants to make it clear that it is consideration. This could also be something like the allocation of a new benefit that the employee has not had previously, such as health insurance. We also need to make sure that employees do actually sign their acceptance of the covenants and that, more importantly, we retain a copy of the signed contract for future reference if we do ever need to dispute what the employee is doing!
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