Four common mistakes with employment contracts

Although there is no legal obligation for employers to provide a contract of employment for their employees, there is a legal requirement to provide a written statement of terms, or “particulars” of employment as soon as employers engage new personnel. This is often a confusing distinction, so why not start with a clear contract of employment which outlines both employer and employee responsibilities and obligations from day one and avoid the headache of disputes later?

“The relationship between an employer and an employee is, at its root, a personal one. Both employee and employer should understand and accept the terms of their relationship jointly in order to make that relationship work effectively. Contracts of employment are the backbone of the workplace relationship” says Jessica Gowar, Head of Employment with Ware & Kay.

“It is not uncommon for contracts to inadequately reflect the true nature of the job role or leave out important details. Employers sometimes draw up hasty statements of terms in an attempt to save money. However, such short cuts can end up being very disruptive and costly for employers in the long run, as they may face disputes about matters perhaps not thought about at the time the employee was engaged. For example, businesses may discover that their intellectual property and other business interests are not as well protected as they thought when employees move on with commercially sensitive knowledge and contacts”.

Jessica addresses four common mistakes and how to avoid them:

• Missing or unclear information

If an employee is effectively working for an employer without a contract or a written statement of terms this will not prevent a claim for Unfair Dismissal. Contracts do not have to be in writing, which means an employee may consider they are working under one set of verbal instructions; however, the employer may think something quite different. This can cause confusion and ambiguity. Imagine that the employer becomes frustrated with their employee for failure to fulfil their contract and decides to dismiss them. Now imagine that employee has been working for over two years. That employee may pursue the employer for unfair dismissal in an Employment Tribunal – and that could turn out to be quite financially and emotionally draining for the employer as they will try and argue what they thought the terms of the contract should have been. In addition, if there is no written statement or if required elements are missing, the employee can ask an employment tribunal to determine the information that should have been given to the employee, usually by considering what the employee considered their duties to be. If the employee is successful in their Unfair Dismissal claim, a tribunal can also award the employee two to four weeks’ pay (subject to a statutory maximum amount of pay) if they are not given a written statement.

This unpleasant and costly situation could have been easily avoided by having a well-written contract which makes expectations clear from the outset. Clear wording minimises the risk of contractual disputes in the future.

• Using an off-the-shelf contract

It is important that any employment contract is personal to the needs of your business. For example, a service business employing casual seasonal workers will have a different set of concerns to a software company where employees have access to confidential data and intellectual property.

Generic clauses, such as confidentiality or conditions of employment may not be suitable and need to be tailored to reflect the nature of your business and the individual’s role. For example, if it is crucial for the employee’s performance of their job that they hold a valid driving licence or they are registered with their professional body, making this a condition of their employment, can make it easier to end the contract and fairly dismiss them if they lose their licence or get struck off.

Including clauses that are specific to your business and the individual’s role is particularly important for any provisions that aim to restrict a departing employee’s actions after they leave. As such clauses are usually unenforceable, these need careful drafting to be legally binding and must be targeted to address the potential damage to your business that the specific individual in that role could do after their employment, if for example, they joined a competitor.

• Inflexible contracts

Using off-the-shelf contracts may also mean that you miss out on including job flexibility in contracts or specific performance targets. Flexibility is essential in an employment contract because without it an employer is not allowed to change anything within that contract without the employee’s consent. This can cause problems and disputes between the parties when altering job roles or job location for example.

• Contracts evolving over time

If the employee’s job evolves, or they get promoted, their working arrangements change or any relevant law changes, the contract will need updating. This is a legal requirement if the change relates to the key information that employers must give to employees in the written statement of particulars. The update has to be made within one month of the change.

It is also important to review the contract periodically to check it is still fit for purpose. Do you need to introduce more stringent provisions to protect your business if the employee now has access to key clients? Have you updated casual worker contracts to reflect   changes in the law relating to holiday entitlement and pay?   Has your worker now become an employee? What extra rights should they be awarded or you should be aware of? What extra risks are there for you? Have you thought about how to future proof your employee contracts? We can advise you on how to introduce changes effectively and smoothly.

How we can help

We are experts in drafting employment contracts and directors’ service agreements. We will ensure that we understand your business and the roles within the business to provide you with the best level of protection and flexibility to meet future change and challenges. The contract can form a template for future contracts in similar roles, to allow consistency throughout the business.

We can advise on the interpretation of existing contractual clauses if you and your employee have differing views and advise you on the best way to resolve the dispute. If contracts need to be changed, we can advise you how to achieve your objectives in order to minimise the risk of breach of contract or claims for unfair constructive dismissal.

For further information, please contact Jessica Gowar in the employment team on York 01904 716000, Wetherby 01937 583210 or Malton 01653 692247 or email jessica.gowar@warekay.co.uk.