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Our top tips for drafting employment contracts

Reviewing employment contracts is often on the ‘to do’ list for business owners but, in our experience, can be something which only becomes important when an issue arises because of a departing or misbehaving employee.

We recommend reviewing template contracts every few years to ensure that they give the protection the employer needs and that they’ve kept up to date with technological changes.  Don’t forget that employment contract terms can come about by verbal agreement, by implication or through custom and practice.

We’re able to offer a fixed fee for reviewing employment contracts and other employment documents.  Just get in touch with info@torquelaw.co.uk if you’d like to discuss this in more detail.

Tiggy recently talked about written employment contracts in one of our virtual update sessions and highlighted the following points which commonly arise in our advice to employers:

Legal minimum requirements

  • Statement of terms and conditions of employment – s.1 of the Employment Rights Act sets out a list of the information which must be provided to the employee.  Following a recent update to the law, this list has expanded to include information about an employee’s probationary period, benefits, paid leave and training obligations.  In addition, employers are now required to provide the minimum information to new starters on or before the first day of employment, rather than within the first 8 weeks as was previously the case.  This change came into effect in April 2020 – a time when many employers were otherwise distracted by the complexities of the early days of the Covid pandemic and so we find that lots of employers have yet to catch up.

Clauses we’d recommend to provide clarity

  • Hours of work – if hours of work can vary, the contract needs to make this clear and the circumstances in which hours would differ.  You should also be clear on whether overtime hours may be available and/or required and, if so, what pay applies for overtime.  Zero or casual hours contracts are fine to use, subject to workers not being prohibited from working elsewhere whilst engaged on that basis.
  • Holidays – it’s sensible to ensure that contracts set out any clear rules on holiday arrangements.  We’d suggest that you include wording which deals with when you’re entitled to refuse an employee’s request to take holiday, when you can require employees to take holiday on certain days, when an employee can carry forward holiday and how holiday is calculated for leavers.  The topic of holiday pay calculations for part time workers is still a thorny issue for employers – but that’s enough for another blog completely!
  • Bonuses and commission – whether you include details of bonus and commission plans in contracts depends on whether you want to be contractually bound by those terms (with the implication that you will normally need to seek agreement to any change).  Our favoured approach would be to make clear that employees are entitled to participate in a bonus and/or commission arrangement as part of their employment but for the specific terms to be provided to the employee separately and for those to be reviewed periodically.  This allows employers to more easily amend the bonus terms to ensure that the employees are appropriately incentivised.  However, meaningful reviews need to take place to avoid employees gaining a contractual right by ‘custom and practice’.
  • Flexibility – it is helpful to have a general flexibility clause as this can allow you to make minor changes to the contract (for example, changes to benefits providers or payroll date), simply by giving notice to the employee.  More specific flexibility clauses (for example, about duties or place of work) can also be helpful.  Implementation of flexibility clauses will need to be carried out reasonably in all cases and more significant changes will require employee agreement

Clauses we’d advise including for all staff

  • Deductions from wages – without a specific clause in the employment contract, you cannot deduct money owed by your employee from their wages.  We’d recommend specifying any items which you may wish to deduct the value of, for example over payments of wages, holiday taken in excess of entitlement or company property not returned at the end of employment.  It’s also a good idea to include a catch-all allowing you to recover any other monies owed to you.
  • PILON – Pay in Lieu of Notice clauses are helpful and we’d recommend that they’re included in all contracts.  PILON clauses apply after notice is served (either by the employee resigning or by the employer giving notice of termination) and they give you the option of ending employment immediately and paying the employee the salary which they would have earned during the notice period.  After employment ends, no benefits are normally due and you can state in your contract that PILON is limited to basic salary only (and not pension contributions, bonus or commission payments, overtime which may have been earned during notice or holiday which would have accrued during notice).

Clauses we’d advise including for more senior/customer facing staff

  • Garden leave – garden leave also applies after notice has been served by either the employer or employee, but is different from PILON because the employee remains employed, but can be required to stay away from work or to do other duties during their notice.   This can allow you a period to keep the employee out of the market and prevent them from dealing with your precious clients and other business contacts, thus allowing you to cement the relationships between those clients and contacts and your organisation.  Your garden leave clause can clarify the terms which will apply to any employee placed on this type of leave.
  • Confidential information – any employee who has access to confidential information should have a clause in their contract specifying that that information cannot be used by the employee after their employment ends.  Without this, confidentiality is limited to the time when the individual is employed by you.  It’s important to be as clear as you can be about what information is confidential and where it might be kept and used.
  • Restrictive covenants – without a clause in the contract, you can’t restrict what an employee does in their future employment.  That said, any restrictions need to be carefully worded to ensure that they are appropriate to the employee and the type of work that individual carried out, but also to ensure that they go no further than is necessary to protect your organisation’s legitimate business interests.  Carefully worded restrictions can prove extremely effective in protecting customer and supplier relationships and discouraging other employees from leaving, but these will need to be tailored to the employee’s role and the threat they could pose to your business interests.
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