How Effective Are Your Contracts of Employment?
Author: Matthew Kilgannon
At Downs, we regularly review and draft Service Agreements for Directors and contracts of employment (whether for full-time staff, part-time staff, fixed term appointments, home workers, zero hours etc). Doing so enables us to highlight some important areas for you to consider.
The starting point is the interaction of the contract with other documentation, in particular, your offer letter and staff handbook.
Our view is that any offer letter should be limited in what it says about the benefits/terms being provided; simply to avoid any confusion or uncertainty in the event the two contradict each other. Ideally, the focus of the offer letter is to sell the role and your organisation, rather than detailing all the terms of employment.
In relation to your staff handbook/policies, our view is that it should be ‘non-contractual’. That way you shouldn’t need to seek your staffs’ consent every time there is a change in law and various policies/rules need updating.
Employment Rights Act 1996 (ERA)
The starting point for any contract of employment is Section 1 of the ERA (available here) which dictates what information must be included in every contract of employment. There are other sections that need to be considered as referred to in Section 1, but its important to remember that the ERA is there to protect the employee, not you.
Our view is that while the contract must comply with Section 1of the ERA, it should go further to offer your organisation greater protection. The contract is your opportunity to balance some of your employees’ rights and to protect your business.
Provided the contract is in writing the terms specified in it will be ‘express’ terms. In addition, the courts also ‘imply’ terms between you and your employees. Some of the implied terms place obligations on you (such as to provide a suitable working environment), whereas others are placed on the employee (such as, the duty of fidelity).
For any areas that require the employee’s express consent, you must ensure this is secured, and the contract is the easiest place to do so. This will be for things like your ability to make lawful deductions and to process personal data (see below).
The amount you pay when an employee is on sick leave can impact on the level of absences in your organisation; the more generous you are the more absence may be an issue. Often organisations pay more than statutory sick pay; whether a fixed amount or by way of discretion. This is common, but it poses a risk.
If you inadvertently treat one (or one group) of employees more favourably than another, it can lead to allegations of discrimination. The most obvious issues lie with those employees who are ‘disabled’ within the meaning of the Equality Act 2010. A disabled employee is likely to have more time off owing to their illness and any unfavourable treatment may amount to discrimination on your part.
You will process ‘personal data’ about your employees and, to do so, you need their express consent (see above). While it is usual to have policies governing how your organisation will process personal data’, the contract can be the easiest place to secure their express consent.
While your employees are under obligations not to use or disclose confidential information during their employment, the obligation ceases when their employment ends.
In order to protect your organisation, you should consider, and clearly state, what information is confidential and that the obligations not to disclose it extend beyond the termination of employment.
This area also highlights how confidential information is used within your organisation. Here IT policies are key, as these can detail the practical ways in which your confidential information can/cannot be used by employees, especially when it comes to keeping such information secure.
Employers usually tell us that clauses preventing an employee’s activities after the termination of their employment are unenforceable. We disagree.
Provided the restrictions are carefully drafted, you should be able to protect your “legitimate business interests” by preventing a former (or existing) employee from:
- working in competition;
- poaching clients/customers;
- poaching your staff;
- using confidential information; and/or
- dealing with clients/customers.
We shall shortly be circulating an article on this topic, which will contain further information.
These link heavily to clauses dealing with restrictions, especially when considering garden leave provisions. The general rule is that the longer the notice period, the better protected an employee is (as it will cost you more to dismiss).
We usually advise that clients have different notice periods in place, in particular, to reflect the notice required during and after probationary periods.
Once a probationary period has been passed, notice periods usually increase, but you can have different levels of notice from you and the employee.
You may also want longer notice periods for key staff who will be difficult to replace.
There are strict rules that apply when it comes to deducting money from an employee’s salary. If an unlawful deduction is made, the employee is entitled to recover the sum deducted and you will be prevented from recovering the amount.
The legislation views wages as sacrosanct, and the only way to be able to deduct money is to have the employee’s express consent that in certain circumstances money can be deducted from their wages. Owing to the need to have this as an express term, the contract is the best place to provide for this.
We could go on. We have devised a simple checklist that may help identify how effective your contracts of employment are. If you would like a copy of this please contact the author.
There are many other areas to a contract that need careful consideration and drafting. Your contracts of employment should also be regularly reviewed and updated, where necessary.
If you would like to speak with us regarding a review of your contracts, or for more information, please contact the author, Matthew Kilgannon on 01483 411517 or email@example.com.