The employment contract is probably the most important document you can give your staff… but costly mistakes are far too common.… especially when using an old template or buying a “one size fits all” contract online.
Not updating contracts regularly
Employment law is constantly changing. Case law is always developing and new legislation is introduced at least twice a year. We see some very good contracts but the majority haven’t kept pace with even the most basic changes. It is easy to keep using an old contract again and again… until there is a dispute
Poorly drafted restrictive covenants
Restrictive covenants (clauses which restrict what an employee can do after their employment ends) will only be enforceable if you have a legitimate business interest to protect and go no further than protecting that interest. If what you are tying to stop the employee from doing is too onerous, it won’t be enforceable. If the restriction is for too long a period or covers too great an area – it won’t be enforceable.
Many employers who adopt a “one size fits all’ approach will find their efforts to protect the business are void. Case law in this area is developing all the time so it is always advisable to seek legal advice when a new employee starts or is promoted.
Not having service agreements in place for executive directors
Your directors are likely to be among the most valued employees in your business and also have the potential to do the most harm should things turn sour. Always have written service agreements o employment contract in place to protect your business.
Making policies contractual
Stating that all policies and procedures are contractual is a bad idea.
Making a policy contractual takes away your discretion on how and when to apply it. If you depart from a contractual policy then you are at risk of a breach of contract claim.
If policies are contractual then employees’ consent will be required to make any changes to them. This is easier said than done and rarely quick.
Refer to the company’s policies in the contract and state that the employee is required to abide by them, but make clear that they are non-contractual and can be varied or withdrawn at any time.
Non-compliance with the law
Ensure your contracts comply with at least the minimum requirements under law. For example, check that your employees are receiving at least the minimum wage, the minimum holiday entitlement, and that their notice period is not below the statutory minimum.
In addition, Section 1 of the Employment Rights Act 1996 requires employers to provide employees with a written statement of certain ‘particulars’ of employment, so make sure these are all included. Many of these particulars would be included in any employment contract as a matter of course (e.g. job title, hours of work, salary) but others are easier to forget (e.g. how holiday pay on termination is calculated, who the employee should submit any grievance to). Additional particulars will be required by law from April 2020, so diarise another contract review next spring.
Failing to include a payment in lieu of notice (PILON) clause
Since the tax law changes in April 2018, there is no longer a potential tax benefit by not including a PILON clause in the contract.
The risk of not including a PILON clause and then paying the employee in lieu of notice is technically a breach of contract which would make your efforts to protect your business with restrictive covenants unenforceable.
Stating that the employee consents to the company processing their personal data
Since the advent of the General Data Protection Regulation (GDPR), you should no longer rely on such consent. Instead, a privacy notice should be issued to employees setting out the legal basis upon which you will process their data, what is processed, how long it is stored, and what their rights are in relation to the data etc.