Unsigned Contracts of Employment
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Unsigned Contract…have the terms been agreed?
A contract can be written or verbal, and it does not always have to be signed for it to be binding. An employees consent to the terms of the agreement can be implied through a person’s conduct. However, depending on when the clause is performed will depend on how difficult it is to enforce.
Creating a Contract
For a contract to be valid there needs to be the initial offer, the acceptance of that offer and consideration. The Consideration is a term used in contract law that refers to an exchange of something for a value or an amount.
The contract will need to be issued to the employee no later than two months of their start date, and ideally, this will need to be signed. The signature demonstrates explicit acceptance of the agreement.
If an employment contract is not signed, there can be uncertainty about what has been agreed, particularly if the contract was particularly complicated. Although a binding contract does not need to be signed for it to be binding, signing the agreement will protect both the employee and the employer.
Consent Through Employee Conduct
There will be terms that are performed immediately during an individual’s employment. For example, the employee will perform their duties in return for the employer paying a wage.
Terms that are in a contract but are not performed immediately, for example, post-termination clauses are more difficult to enforce if the contract has not been signed. If a person is working in a position and completing their contractual duties from their employment start date, it is more likely that they will be binding.
However, if there are particularly severe post-termination clauses within the unsigned contract, there is no consent through conduct for these. Therefore, they would be more difficult for the Company to enforce on the employee, especially if they were disputed for being unreasonable.
Changes to the Contractual Terms
A clear and formal way of notifying an employee of the prospective changes would be to provide them within a written document. This will need to be signed and dated to show that the terms have been agreed to.
It is more straight forward to resolve a dispute surrounding new terms if the new agreement has been signed by the employee.
Changes to a contract can be made orally, however, the alterations still need to be agreed, and either party will need to be able to evidence that they have been agreed to.
If the employee has not been notified of the changes, this can cause issues that may prove to be costly. It could mean that the employee is entitled to terminate their employment without notice because of the employer’s behaviour. Therefore an employee may have a strong case at Tribunal for a dismissal claim as the Company has breached the agreed contract and therefore the individual has no choice but to resign. This can result in a constructive dismissal claim for the business, and the breach would be difficult to defend.
If a contract has been signed, it is easier to argue that the terms have been agreed. However, if the terms are far too onerous they are more difficult to enforce. For example, the restrictive covenants need to be a legitimate interest for the Company and must be proportionate to the role of the employee.
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Case Law - Post-Termination Clause & Unsigned Contracts
Tenon FM Limited V Cawley
Background of the Case - Ms Cawley was an employee of Tenon FM since 2008 and had an employment contract containing restrictive covenants. They stated that she was unable to ‘poach’ clients, business or employees for a minimum of 12 months after the termination of her employment at Tenon FM.
In 2011 Ms Cawley was promoted and Tenon FM issued a new employment contract that contained more onerous restrictions which reflected her senior role in the Company. Ms Cawley stated that she had not signed the new terms because she did not agree with them. This was disputed by Tenon, however, they were unable to locate a signed copy.
They had also discovered that Ms Cawley had attempted to ‘recruit’ a co-worker on behalf of her new employer (who was a competitor). Having found this information, Tenon attempted to enforce an interim injunction for her to comply with the restrictive covenants.
The Decision - The Judge noted that the contracts made it clear that they would only be effective once they had been signed. As a signed copy of the contract had not been presented by Tenon, Ms Cawley’s contracts were not binding and it was held that Tenon’s request for an injunction was refused.
It was noted by the Judge that same onerous restrictions did not apply to the other senior employees despite having the same access to client and confidential information. Therefore the decision was made that enforcing the new restrictions post-termination in this case would be unreasonable.
FW Farnsworth v Lacy
Background of the case - This involved an employee that was promoted to a senior position, and as a result he was offered a new employment contract. This included additional benefits such as private medical insurance and a new pension scheme. Due to his new role there would be new expectations, and therefore the restrictive covenants reflected this.
Decision - The new contract was not signed. He left his employment and went to work for a competitor which breached the post-termination restrictive clause. Despite not signing the agreement, it was held that he had implicitly consented to the terms (including the restrictions) from the date that he applied for the private health insurance.
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Things to Consider…
As there is uncertainty around whether terms are enforceable if the contract has not been clearly agreed, it is always advisable to get the employee to sign. If they are reluctant to sign the document, there are limitations and risks for the Company.
Main Risks To The Company Due To An Unsigned Contract
- Lack of certainty regarding mutual employer/employee duties
- Inability to enforce deduction from wages (for example, PAYE or attachment to earnings)
- Difficulty surrounding who owns Intellectual Property rights.
- Unable to put an employee on garden leave
- An employee can terminate their employment, go to a competitor, ‘poach’ clients or Company employees.
If any of the above are performed without a signed contract, the employee could take action against the Company for breach of contract.
Ways to Resolve…
If the contract has not been signed because the employee is refusing, it is important to have a discussion to find out the reason for this. It may be a simple case of them forgetting. However, it may be that they do not understand the terms which could be resolved by the individual speaking to a legal or HR advisor.
This could be an issue when they are disputing some of the terms are particularly onerous.
Therefore, an obvious next step would to discuss the concern with the view to provide a beneficial solution to both the employee and the Company.
If a new contract with additional terms that are more severe, it is expected that the employee should be compensated for this by way of an additional benefit, for example, a bonus, salary increase or promotion.
If the contract remains unsigned, it will be the employer’s responsibility to evidence that the terms were agreed. Clauses that have an immediate effect, for example, the place of work will be easier to argue. This is compared to an employee that continues to be employed under post-termination clauses that are being objected to.
About the author
James is on the Business Development & Account Management team at Neathouse Partners and regularly posts articles surrounding issues in HR & Employment Law, including case law & legislation updates. If you have a particular issue you would like addressed, feel free to drop James an email, and he will be happy to offer his assistance.
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