Legal

Top employment contract mistakes

2 Aug 2019 By Emily Kearsey

The contract is probably the most important document in an employment relationship, yet drafting errors are still common, as Emily Kearsey explains

Not updating contracts regularly

Employment law is very dynamic. Case law is always developing and legislative changes are frequently introduced reflecting the evolution of the employment market, changes in government, and, for the time being at least, developments from the EU. Your employment contracts should be regularly reviewed and updated where necessary to reflect changes in the law and best practice.

Poorly drafted restrictive covenants 

Restrictive covenants (i.e. clauses restricting what an employee can do after their employment ends) will only be enforceable if they go no further than is necessary to protect a company’s legitimate business interests. Another way of explaining this is ‘don’t be greedy’ – to be enforceable, restrictions must be carefully tailored to the individual employee and be justifiable in terms of their scope and duration. A ‘one size fits all’ approach (which we see all too frequently) will not work. Case law in this area is developing all the time so it is advisable to seek legal advice when drafting restrictive covenants.

Not having service agreements in place for executive directors

Your directors are likely to be among the most valued employees to your business and also have the potential to do the most harm should things turn sour, so make sure you have written service agreements in place to protect your business. 

Making policies contractual

Stating that policies are contractual is a bad idea. Firstly, making a policy contractual sets the company up for a potential breach of contract claim if it doesn’t stick to the policy by the letter. Secondly, if policies are contractual then employees’ consent will be required to make any changes to them. 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state that the employee is required to abide by them, but make clear that they are non-contractual and can be varied or withdrawn at any time.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 the various minimum requirements under law. For example, check that your employees are receiving at least 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. Conversely, the risk of not including a PILON clause is that paying the employee in lieu of notice is technically a breach of contract which would cause any restrictive covenants to fall away, and in the absence of a PILON clause, payment in lieu of notice should cover not only basic salary, but also the value of the employee’s benefits during their notice period.     

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. 

Emily Kearsey is an associate in the employment team at Goodman Derrick LLP

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