Enforceability of an unsigned contract

A recent case, Tenon FM Ltd –v- Cawley, has highlighted the dangers to employers of failing to ensure that senior employees sign their contracts of employment. In this case the employee left her employment and then sought to persuade one of her colleagues to join her at her new employer. This action could have been in breach of restrictive covenants in her contract with Tenon. In proceedings for an injunction, Tenon argued that she was bound by the restrictions in her contract. Unfortunately Tenon was unable to locate signed copies of the contract. They argued she was bound in any event as she had received the contract and by continuing to work for them her acceptance was inferred from that conduct. Ms Cawley argued that she had refused to sign the contract because she did not agree the restrictive covenants contained within.   

The court decided that the contract had not been accepted. The reasoning was based, in part, on the fact that whilst some changes can be agreed to by an employee continuing to work, despite not signing a contract, these changes only took effect after the employment had terminated.

In addition, the court considered whether consideration had been provided by Tenon for the changes to the contract which were set out in the unsigned contract. Tenon argued that because she had continued to work and they had continued to employ her, consideration had been given. The court disagreed and said that where more severe restraints of trade are added to contracts during employment then adequate consideration must be provided.

Employers therefore need to ensure that if they want to strengthen contractual restrictions on existing employees, they ensure that the employee gives express agreement by signing the new terms and that they receive adequate consideration (for example, a pay rise) for accepting those.

I am based at our Colchester office and can be contacted on 01206 217 610  or [email protected].