Employment contracts continue to make headlines due to debates around zero hours contracts, the ‘gig’ economy and the national minimum wage. Our employment solicitor Clare Thomas explains the common mistakes employers make when it comes to employment contracts.
Key issues with employment contracts:
- There is no written contract!
- Poorly written/drafted
- Contractual or non-contractual provisions
- Contracts are altered incorrectly
- Post termination restrictions are excessive or vague
There is no written statement
An employer must provide a written statement within two months of an employee starting work which, by law, must contain certain information relating to the employment.
Where the employer fails to issue the employee with a written statement, the remedy is to apply to the employment tribunal for a declaration of what the written statement should have included. In some cases, if successful in another employment tribunal claim, an additional award of between two and four weeks’ pay can be made.
It is therefore important that the employee is provided with the written statement within the time period required.
Another key issue with employment contracts is that they are not drafted clearly and with the necessary flexibility and detail the employer requires. Whilst “standard form” contracts will ensure the statutory minimum information is provided to employees; they will not be tailored to suit the needs of your business.
Ambiguity in an employment contract will usually be interpreted in favour of the employee which can lead to unsatisfactory outcomes for the employer.
As businesses change and grow, we recommend employers review their employment contracts regularly. As part of our Employment Protection Scheme our business clients have their contracts and policies and procedures reviewed annually. This is a useful exercise in ensuring we continue to understand your business and the contracts and other documentation are tailored to suit your needs.
Contractual or non-contractual terms
It is also important to identify the distinction between contractual and non-contractual terms. Simply providing a written statement of the information required by law may not amount to creating contractual terms unless the document is stipulated to be contractual. Similarly, non-contractual terms can inadvertently. over the passage of time, become contractual if it is not made clear that they remain non-contractual.
Employers often include detailed policies and procedures as terms of the contract, i.e. a disciplinary procedure; this means the employer is contractually bound to follow a procedure and failure to do so can lead to breach of contract claims. Many policies and procedures do not need to be contractual. This allows the employer the flexibility to deviate from or change them as required.
Equally, in other situations, it is important to the employer that it has contractual rights and the employee has contractual obligations. For example, in relation to confidentiality provisions or the ability to make deductions from an employee’s wages.
Getting the distinction between contractual and non-contractual terms correct is crucial to allow the employer flexibility when required and to have the ability to enforce terms against an employee if needed.
Contracts are updated or changed incorrectly
Employers can in certain circumstances change existing contracts. However, the process to be followed depends on the number of employees affected by the changes, the type of change the employer is looking to implement and the likely response anticipated from the employees.
If there are 20 or more employees, then the obligation to collectively consult can be triggered; this involves electing group representatives and engaging in consultation with employees over a minimum period of 30 days (or 45 days if 100 or more employees are affected).
Regardless of whether the obligation to collectively consult is triggered, it is good practice to consult with employees on any proposed changes. Seeking to unilaterally impose changes can be problematic and lead to claims of constructive dismissal and/or breach of contract. It is usually better to resolve issues and find a compromise before implementing a change. This helps to maintain morale across the workforce whilst also achieving the business objectives influencing the proposed change.
Furthermore, we sometimes find that employers have flexibility within their existing contracts (or policies and procedures) which if drafted correctly and exercised reasonably, can allow them to make variations without specifically changing the terms of the contract. This can be a simpler process, however, again balancing employee morale is key.
Employees are often suspicious of any change and, of course, there may be employees who resist change just on principle. This needs to be carefully managed. The whole process of change is much easier to manage and communicate to employees where there is a clear business case for a particular action. Where you can make a business case for change and your relationship with your employees is good, the less likely you are to be exposed to legal action against you. The key is to keep communicating and encourage two-way communication.
We can advise on implementing new contracts, changing specific terms of your existing contracts and ensuring the outcome meets your business needs.
Post termination restrictions are excessive or vague
Post termination restrictions are also known as restrictive covenants and can prevent an employee carrying out certain activities once they leave your business. These are usually contained within employment contracts and entered into at the start of employment or if an employee is promoted or changes position.
Post-terminations restrictions are designed to protect the employer’s business interests. They are commonly used with senior staff and/or employees with access to important clients or contacts and/or confidential information. Common restrictions prevent former employees working for competitors, soliciting or dealing with clients or poaching staff. They work alongside the duties of confidentiality which should also be detailed in the employment contract.
Restrictions need to be carefully drafted, because for them to be enforceable against employees, they must only go as far as is necessary to protect the identified business interest. If they are too vague, too broad or not in place to protect a specific business interest a court would not enforce them.
However, well drafted restrictions are enforceable and crucial in protecting an employer’s business from the damage a departing employee could cause.
If post-termination restrictions are key to protecting your business, we recommend obtaining specialist legal advice on the wording used to mitigate the risk that the restrictions are unenforceable when needed.
Do you need legal help drafting your business employment contracts, company policies or staff handbook to ensure legal compliance? Contact Clare Thomas on our employment team today for advice on 01782 200000 or email email@example.com