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Employment Contracts

Many employment disputes could be avoided if a properly drafted employment contract had been put in place at the start of the relationship. “One size fits all” drafts are often not appropriate but, without proper guidance, knowing what to include can be daunting. The Keystone Employment Team has put together this Keynotes publication to highlight the main issues.

Before drafting an employment contract, there are a number of things to consider:

Information gathering

The exact extent of the information gathering excercise will depend on each contract. Set out below are the customary requirements.

Names and addresses of both parties

(NB: if the employer is a group company, care is required to select the right group company)

Bespoke clauses

The real value will be the parts of the contract that address issues of particular relevance, for example:

Restrictive covenants:

These are included where the employer considers that he will need to protect his business interests when the employee leaves. They can take various forms, but the most common include non-competition clauses (which prevent the employee from working for a competitor for a period of time), non-solicitation clauses (which prevent the employee from soliciting clients of the employer or other staff) and non-dealing clauses (which prevent the employee from dealing with specified people e.g. suppliers / clients). Restrictive covenants can be notoriously difficult to enforce and accordingly they have to be extremely carefully drafted and no wider than reasonably necessary to protect a legitimate business interest of the employer. It is usually necessary to limit their application in terms of time and scope. Always seek legal advice before including restrictive covenants.

Garden leave clause:

This allows the employer to place the employee on garden leave (i.e. still employed but not at work) during his notice period. This is often used to protect customer contacts and confidential information during the notice period. Where both garden leave and restrictive covenant clauses are present it may be appropriate to dovetail them so that any period of garden leave is deducted from the duration of the restrictive covenants. This may help the enforcement of the covenants.

Payment in lieu of notice clause ("PILON"):

This allows the employer to terminate the employment immediately by paying in lieu of the notice period instead of allowing the employee to work it. Careful drafting is required, for example, to determine which sums are payable (is the payment limited to salary only or the value of salary and benefits?). The downside of a PILON clause is that its inclusion often makes the notice pay taxable, whereas this can sometimes be tax-free if the employee is dismissed without notice where no PILON is present. It is important to include a PILON clause if the employment contract contains restrictive covenants or other clauses which continue post-termination - otherwise dismissing summarily without the right to do so under a PILON clause could render such covenants and restrictions unenforceable. More complex PILON clauses can provide for payment in instalments, subject to the duty to mitigate by looking for other work, but this is unusual.

Recoupment of training costs:

Employers who pay for the employee to undertake some formal training (e.g. an NVQ related to the job) sometimes wish to provide in the contract that a proportion of the training cost should be repaid if the employee leaves within a certain period of time. Such clauses have to be carefully drafted, usually including a sliding scale (so that the amount repayable decreases as time goes by), to avoid the term being unenforceable as a penalty clause or in restraint of trade.

Flexibility/variation clauses:

Some employers wish to leave leeway to alter a specific element of the employment in the future - for example, to allocate a different role, impose additional travel commitments or change working hours. Such clauses are not always enforceable but those which are both reasonably drafted and reasonably enforced stand the best chance. For example, give as much notice as possible of any change, consult with the employee, compensate financially for any increased travel costs etc. Draft and exercise such clauses with caution and consider whether proposed changes could discriminate against a particular section of your workforce.

Bonuses:

It would be possible to fill a whole textbook with complex case law about entitlement to bonus payments. Such clauses need very careful drafting, usually in conjunction with a separate bonus policy.

Common issues to consider include:

Social media:

With the use of social media sites at an all time high, an internet/email clause should be considered in the contract and/or policy, specifying to what extent, if any, access is permitted on the employer's IT equipment. The contract and policy can also make clear that damaging commentary about the employer (or other members of staff) being made on such sites (whether or not in work time) may lead to disciplinary action. This may help defend Tribunal claims if disciplinary proceedings end up resulting from inappropriate comments.

Conclusion

Once the contract has been drafted and signed, keep it safe and ensure that it is updated very clearly and in writing to reflect salary increases/promotions from time to time. If substantive changes need to be made to the contract terms after it is signed, always seek advice on the best way to go about this, as employment contracts cannot usually be changed without the employee's consent. If there is any change to any of the required statutory particulars, the employer must give the employee a written statement containing details of the change at the earliest opportunity and, in any event, no later than one month after the change.

For further information please contact:

This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.

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