The protective clauses your contracts might be missing

When an employee resigns or is dismissed, a watertight contract is essential. Rachel Holding outlines clauses that can strengthen an employer’s position

Lay-off clause

When there’s a temporary shortage of work, an employer is not able to send employees home unpaid (lay them off) without an employment contract that permits this.

A lay-off clause covers unexpected downturns in work in industries like manufacturing, and supports any business negatively impacted by events like fire, flood, or pandemic. For example, any company without lay-off clauses in their employment contracts would have faced potential disaster if it hadn’t been for the government’s furlough scheme introduced during the Covid crisis.

A lay-off clause allows you to temporarily offer no work, with no contractual payment. However, the employee may be entitled to a small statutory payment of up to £30 per day for five days.

Payment in lieu of notice (PILON) clause

If you have good reason to dismiss an employee, and prefer them to leave immediately, a PILON clause means paying them for the period of notice they would have been required to work.

It’s possible to pay employees in lieu of notice without a PILON clause in your contract but it’s always safest to have one that expressly permits it.

Employer notice period clause

People often think that the notice period for both resigning and terminating a contract must be the same, which isn’t true. It’s usually in the employer’s best interests for the employment contract to state that if employment is terminated, then the legal minimum notice periods will apply.

The legal minimum notice periods are:

  • less than one month’s service – no notice;
  • after that, one week’s notice for each complete year of service up to a maximum of 12 weeks’ notice.

Most cases of dismissal are due to poor performance or misconduct, so by including the legal minimum notice periods in your contract, you can keep any PILON payment to a minimum.

Deductions from salary clause

This clause allows an employer to make deductions directly from the employee’s salary, if necessary, to recoup overpayments in holiday pay or to cover the cost of lost or damaged company property.

This can only be done where a contract permits it so it’s an extremely useful clause to include.

Post-termination restrictions (restrictive covenants)

These clauses are helpful for protecting your commercial business interests if any of your employees could ‘poach’ important clients or colleagues when they leave your employment.

However, case law makes it clear that they cannot be used as “an unreasonable restraint of trade” and they usually last for a period of no more than six months after the end of employment.

Garden leave clause

A garden leave clause allows you to insist that an employee stays away from the workplace, customers, suppliers, and colleagues during their notice period.

Unlike PILON clauses, the employee is still employed so they can’t work for another employer during this time. It’s a clause you might not rely on but it can nevertheless be a useful card to have in your deck.

Mobility clause

A mobility clause allows you to move employees anywhere within reason. For example, if you were relocating your business, you could rely on the mobility clause to require the employee to relocate with you. If they refused, you could dismiss them for misconduct in failing to obey a lawful instruction (provided the request to relocate was reasonable) and in this case you would avoid a redundancy pay out.

Like other clauses in this list, however, it must be exercised in a reasonable manner.

One final tip

Contracts and clauses need to be worded in a particular way to protect your business interests, ensure compliance, and give you the flexibility you need. For peace of mind, consider using a specialist to make sure your contracts are watertight.

Rachel Holding is a senior employment law adviser and solicitor at WorkNest