June 22, 2023
Can an unsigned employment contract be valid and enforceable?
When deciding enforceability, employment judges will look closely at the conduct of the parties, what each of them understood at the time and what type of clause is involved.
An employment relationship can arise where the employer and the employee have verbally agreed the terms. Other times there may be email trails and counteroffers to consider.
However, having a professionally written signed employment contract in place means there is less chance of costly disputes and misunderstandings.
Sometimes candidates are not entirely happy with the offer or proposed contract terms. They may negotiate or start working without signing whilst agreeing most terms with other terms left to be finalised, such as probationary periods, length of notice, bonus arrangements or even the remit of restrictive covenants.
Employment tribunals look carefully at the communications between the individual and the employer before deciding what was agreed between them. Sometimes the tribunal will infer agreement. FW Farnsworth Ltd v Lacy was just such a case. The employee in that case was deemed to have accepted new restrictive covenants in an unsigned contract because they acted as if they had accepted other new contract terms by applying for medical benefits which weren’t available to them under their old contract.
An employer may forfeit important business protections if true agreement is not reached by the time employment starts.
If the employment contract is a restatement or renegotiation of terms for existing staff, look carefully at whether the terms are binding. For example, did the employee understand what the updated terms meant? Were terms left open ended and vague until one party or other wished to rely on them? Are the surrounding circumstances such that the whole contract is invalid?
It is not unusual for employers to ask existing employees to sign new contracts of employment. Consent to new employment terms is typically easy to obtain if it follows a promotion or pay award. When deciding enforceability of unsigned contracts, conduct after the new contract was put in place will be scrutinized, for example, whether the employee has behaved in a way that suggests they have accepted the updated terms, perhaps by accepting a benefit only available under the new terms as in the Farnsworth case.
For help getting your employment contracts right don’t hesitate to get in touch.