Benefits without burdens?
Do promoted employees have to sign a new contract?
Promotions are exciting things. For employers, they usually represent a recognition of success and development of their workforce. For employees, they usually represent recognition of their hard work and development of their salary!
The underlying logistics of promotions are, surprisingly for employment law, relatively straightforward. It is recommended that a promoted employee signs a new contract which can clarify any new responsibilities, formalise increased benefits and implement new (or reiterate existing) restrictive covenants.
While this sounds easy, a question we commonly face is – what happens if the employee does not sign the contract?
There is a generally accepted principle that if a contract is issued to an employee and they do not vocalise an objection to its terms and proceed with their employment, they will be deemed to be bound by the majority of its terms. A key exception to this is restrictive covenants, which usually require a signature to be binding.
A 2013 case took a different approach however. Mr Lacy was promoted by his employer, Northern Foods (NF). Three years later, he resigned, joined a competitor and NF sought to enforce the restrictions contained within the contract issued upon his promotion. Mr Lacy argued that he was not bound by the restrictions as he had never signed the contract.
Interestingly, the High Court found in NF’s favour, ruling that despite his failure to sign, Mr Lacy had voluntarily signed up for the private medical insurance benefit provided by the contract. The court said that action showed unequivocal acceptance of the terms of the new contract. If Mr Lacy had not applied for the insurance, he would not have been bound.
Considering the above, best practice when promoting employees includes:
- Issue revised contracts promptly and set a reminder to ensure that a signed contract is returned. Chase it up if not.
- Make it clear that a new role is subject to the acceptance of all issued terms.
- Active steps by the employee can clearly help demonstrate acceptance of terms. Whilst we wouldn’t advise relying solely on this, it is something for consideration when structuring new benefits.
- Finally, if promotion itself isn’t incentive enough to obtain agreement to new restrictions, consider including a pay rise, bonus, or even something more innovative like an extra holiday for their birthday as a condition of signing the contract.