Beware unsigned contracts when seeking to enforce post termination restraints

Insights - 31/10/2018

The recent case of Tenon FM Ltd v Cawley emphasises the importance of having signed employment contracts, especially where they contain provisions that are detrimental to the employee such as post termination restrictions.  It also acts as a reminder that employers should keep evidence of their employee’s agreement to any changes and of the valid consideration provided.

In this case, Ms Cawley commenced her employment with Tenon in 2008.  She worked her way up through the business and, at the point of her resignation in May 2018, held the role of Operations Director.  Ms Cawley sat on Tenon’s senior leadership team and reported directly to the CEO.

Ms Cawley was initially employed under a contract of employment dated 2008.  Tenon argued that when she was promoted in 2011 she was given a new employment contract.  Although the 2008 contract contained a number of restrictions, those in the 2011 contract were more onerous.  Despite searching, Tenon was unable to find signed copies of any contract.  Ms Cawley said that this was because she had refused to sign them because she did not agree with the post termination restrictions they contained.

Tenon discovered that Ms Cawley had attempted to persuade a colleague to join her at her new employer.  Tenon sought an interim injunction in the High Court to enforce the post termination restrictions against her and also an injunction to prevent her new employer from inducing her to work for it.

The judge considered the matter and looked specifically at three areas:

Agreement?

The judge considered it remarkable that Tenon, a large organisation with an HR Department and an experienced HR Manager and personnel files was unable to locate even one signed copy of Ms Cawley’s employment contract.

The judge accepted that a contract’s terms can be inferred from conduct.  However, the case law relied upon by Tenon suggested it is only possible to infer that an employee has agreed to contractual changes by continuing to work in circumstances where the change has an immediate effect on the employee.  Here the changes to the contract only took effect after the termination of Ms Cawley’s employment.  The judge considered that Tenon would fail on this point.

Consideration?

The judge considered whether Tenon could show that it had provided Ms Cawley with consideration for the contract changes.  The judge decided it could not.  The judge rejected Tenon’s position that an employee continuing to work and the employer continuing to employ could amount to consideration for a consensual variation, particularly where it introduces more severe terms in restraint of trade.

Reasonableness of restrictions?

The judge noted the following:

  • At least two other members of the senior leadership team; and
  • Two other senior employees (albeit more junior to Ms Cawley) who had access to clients and the same allegedly confidential information as Ms Cawley did not have any restrictions in their contracts and this called into question the reasonableness of the covenants and whether Tenon had a legitimate business interest to protect.

Conclusion

  • Employers should ensure that employment contracts are signed by all employees, particularly senior employees, because it will not be easy or straightforward to persuade a court to enforce post-termination restrictions contained within an unsigned contract.
  • If an employer attempts to introduce new post-termination restrictions during employment it must provide adequate consideration for the employee’s agreement to make the variation and ensure that evidence is kept of such consideration.
  • Consistency is also important, if similar level employees who present similar levels of “risk” have different post termination restrictions in their contracts this could undermine an assertion by the employer that there is a legitimate business interest to protect.

If you have any questions or queries about any of the above please contact Francesca Wild, Senior Associate Solicitor in our Employment team by email at [email protected] or by phone on 01483 215 366

Disclaimer:

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.