Contracts of Employment

What particular clauses should we make sure we include?

In addition to the obvious points – such as salary, holidays etc

What type of contract do I need?

Firstly though, is the individual an employee, worker or self-employed?

This is important – employment rights and tax treatment depend on it

You need a different type of contract depending on their status. If you have the wrong contract, you could be exposed to unexpected employment and tax liabilities.

Fixed-term contracts

If you employ someone on a fixed term basis make sure you can terminate on notice within the fixed term

If you don’t write that into the contract and you want to terminate early you will have to pay out the full balance of the fixed term – or try to negotiate a deal

Right to make changes

As many employers have discovered during the COVID-19 crisis it helps enormously when trying to agree changes to contracts (hours of work and pay in particular) if we have the explicit right built into the contract to make those changes.

We still need to consult with affected staff about the changes but, if some don’t agree, we have the freedom to impose the changes rather than having to terminate their employment.

NB: Make sure that the wording is carefully drafted and covers the specific changes that you are likely to want to make in the future.

Probationary Period

State that you can dismiss at any point – not just at the end of the period

State that a shorter notice period will apply during the first 3 or 6 months

If you dismiss, the employee will have less than 2 years service.  But – be careful: some claims for unfair dismissal do not require 2 years service and neither do discrimination claims.

Diarise the end date – avoid the employee passing their probationary period by default (not unheard of).

Include a specific right to extend the probationary period at your discretion.

Notice

Length should depend on:

  1. How much time you will need to find a replacement; and
  2. How long you want to keep them on garden leave and away from customers if they want to leave and join a competitor

For employees who can’t cause harm when they leave and can easily be replaced – statutory minimum notice either way may be fine

For employees who can cause harm – 3 to 6 months.

I don’t really see a justification for a notice period of more than 6 months – for anyone.

Garden leave

Worth having for those employees who might cause harm if they were to set up in competition or join a competitor.

You can keep them away from customers but they are still employed so are prevented from acting against your best interests.

But – is it sometimes an opportunity for them to prepare to compete – while being paid by you?

Yes. But – let them keep their mobile phone, tablet, laptop and limited email access. Track their activity. Check their mobile phone bills. See what they are up to – gather evidence in case you need to take legal action against them or their new employer

Post-termination restrictions

You need to think about this right at the start of the employment – in fact before they join.

Effective restrictions are simple and easy to understand.

And they are enforceable

They put you in a strong position.  If you have clear restrictions and evidence of breach the only real issue is how much compensation you are entitled to

Compensation – whether as a result of a court order or negotiations – will depend on which customers leave, the value of their business and whether there is evidence that they would have left you anyway

Restrictions in previous job

Check there are no relevant restrictive covenants in their existing contract of employment – ask to see the Contract.

If someone is bringing business with them there will often be strings attached

Bonuses

Clarity is paramount

If you want discretion – say so.

Discretion as to whether a bonus is paid at all and discretion as to how much bonus is paid – if you exercise discretion to pay one at all

If we devise a bonus arrangement each year – and that may change from year to year – make that clear

What we want to avoid is being obliged to pay a bonus indefinitely which may have been fine to start with but is now too much

Records

Get a copy of the signed contract – keep it safe. Its surprising how signed contracts have a habit of disappearing when you want to rely on them.

Entire Agreement

Include an “entire agreement” clause in the contract

What’s this?

States that the document contains the entire agreement as to the employee’s terms of employment.  This prevents an employee subsequently arguing that they are entitled to something not set out in the contract – e.g. that a letter offering a discretionary bonus is in fact contractual – and prevents terms being implied by custom and practice