The importance of signed employment contracts and enforcing restrictive covenants

Why should employer’s obtain signed employment contracts?

From a legal perspective a contract of employment is not required to be in writing, therefore there is no express obligation on employers to obtain signed employment contracts from their employees. Whilst oral contracts are legally binding, employer’s without signed contracts looking to rely on and enforce their terms can often be left in a precarious situation and will face an uphill battle in the event of any disputes with employees.

In the event that no signed employment contract has been obtained, acceptance of an employer’s terms can sometimes be inferred by an employee’s conduct such as the employee attending work. However, the tribunal can be reluctant to infer an employee’s consent in respect of more onerous terms which often leaves it difficult for employers to rely on them without the support of a signed contract. This is of particular relevance when employers are seeking to enforce restrictive covenants.

Therefore, it is advisable and highly recommended that employers look to obtain signed contracts from employees at the outset of their employment as far as possible, in order to put them in the strongest position when seeking to enforce their terms or in the event of any future disputes. Where employees are promoted or receive pay increases are other key times to reflect on any restrictive covenants and ensure they are updated within the contract and signed copies are obtained.

Restrictive Covenants – why are they useful?

When leaving an employer, employees are often privy to a wealth of confidential information including client details and other information which is often integral to an employer’s business. The threat of departing employees using this information is often of great concern to employers and it can be detrimental if used by an employee’s future employer, particularly if they are a competitor within the same sector. Post-termination restrictive covenants are a tool which can be used to quell employer’s concerns and allow them greater control in minimising the impact to their business once an employee has left their employment.

Legally there are certain terms which are implied into employment contracts, in the absence of any express inclusion, which employees must observe. However, their scope is somewhat limited and they generally do not extend beyond an employee’s employment. Therefore, in order to protect themselves once an employee has left the business, it is advisable that an employer includes express restrictive covenants into the employee’s employment contract.

The importance of signed covenants

There is little benefit to employers including restrictive covenants in employment contracts if they are subsequently unlikely to be enforceable against departing employees. In order to be able to rely on any restrictive covenants they must firstly be incorporated into the employee’s contract. The most simple and easiest way for an employer to be able to evidence this is to obtain a signed employment contract, including any restrictive covenants, from the employee. Whilst it is possible to include restrictive covenants outside of the employment contract, either in supplemental correspondence or within a staff handbook, this is not advisable and can create issues for employer’s proving the covenants have been sufficiently incorporated into the employment contract. In order to avoid these issues, we would therefore always recommend that any restrictive covenants are expressly included within the employee’s contract of employment.

When seeking to enforce restrictive covenants employers will also be required to adduce evidence that the employee has agreed to the restrictions. Clearly the easiest way for employers to do so is to produce a copy of the signed employment contract. It has also been reaffirmed by case law that there is a presumption that the restriction will be binding where it has been signed by an employee. The tribunal has further confirmed that whether an employee has read the covenants is immaterial, meaning they are still likely to be found to be bound by them. Furthermore, any potential arguments from employees in respect of them not appreciating the effect of the covenants at the time of signing the contract will also fail. The approach by the courts and tribunals further highlights the importance of obtaining signed covenants from employees, especially where employers will be seeking to enforce them, in order to minimise the potential for any future disputes. This is therefore something that employers should be mindful of.

It is therefore always best practice and advisable to obtain signed employment contracts from employees at the outset of their employment (and updated contracts when they are promoted into a new role) especially where they contain restrictive covenants that employers will be looking to enforce. Our employment team here at KBL are happy to draft any employment contracts for you and can also provide advice in respect of any issues arising from existing contracts. We can also advise on restrictive covenants and their enforceability.