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Does an employee have to sign a new contract when promoted?

It is very common for an employee to be asked to sign a new contract once they have been promoted.  The new contract will usually give the employee increased benefits such as private medical insurance.  The new contract may also include new commitments such as restrictive covenants that will seek to prevent the employee from working for a competitor organisation for some months after they leave the employer.

An employee may feel that they should not sign the new contract, however, if they want the promotion they may think they have little choice. Some employees may simply forget to sign the contract and file it away in a draw.  This is what a Mr Lacy did when presented with a contract by his employer Northern Foods after being promoted to the lowest level of senior management.

Three years later Mr Lacy resigned to join a competitor firm, Pooles of Wigan Limited.  Northern Foods had included a restrictive covenant in the new contract and, upset at losing Mr Lacy to a competitor, sought to enforce the covenant and stop Mr Lacy taking up the new post.  Mr Lacy said that he could not be bound by his latest contract because he had not signed it.  Northern Foods argued that there was an implied acceptance of the terms of the contract.  This claim was based on the fact that Mr Lacy had joined the pension scheme and taken up the private medical insurance as per the contract offered to him. Mr Lacy thought that he was simply entitled to these benefits because of the promotion, regardless of what any unsigned contract said.

The High Court held that Mr Lacy was bound by the terms of he contract, including the covenants, even though he had not signed it.  They found that joining the pension scheme was not relevant because the existing final salary scheme he has been a member of was being closed down and, therefore, the move to the new defined benefit scheme was not connected to the contract.  However, the court viewed the joining of the private medial insurance scheme differently.  Mr Lacy had read the contract and this would have alerted him to the employment relationship being redefined from a legal point of view.  He had voluntarily applied for the medical insurance and this was regarded by the court as a move that showed unequivocal acceptance of all the terms of the new contract, even though it had not been signed.

If it had not been for the application for medical insurance then Mr Lacy would not have been bound by the new contract. This would mean that Northern Foods would not have been able to enforce the restrictive covenants which were so important to them. Employers should, therefore, make sure that any revised contracts that are introduced at a time of promotion are signed as soon as possible.  Without the contract being signed there will be a risk that the employee will not be bound by new key terms.

If employees do not want to accept a change of contract they may continue to work for the employer but they must make sure they indicate that they are working under protest and that they do not accept the new terms.  Acceptance is possible without signing but whether this has happened will be judged by looking at the employee's conduct rather then their intentions.

By Martin Williams