Contracts of Employment.Who needs them?

Employment Contracts - The facts

Many times I hear of business owners who have not provided employees with a contract of employment. Frequently when asked why, they point out that they have provided a ‘statement of terms’, which covers their legal requirements. If provided within 2 months of the employee starting work this is absolutely correct. However as with many things in employment law this is the bare minimum you need in order to be legal. It is a bit like having Third Party only insurance on your car, when you need Fully Comprehensive. And, like many the time you find you need the extra protection is just too late.

However, a well-worded contract of employment tailored to your needs can support your business and will avoid the position where general employment law becomes your contract and dictates what you can do. I have detailed below a number of areas where a contract of employment would definitely be of benefit to you as a business owner.

Confidentiality; Imagine a situation where one of your employees downloads your whole customer database, details of their purchases with you, and then sets up down the road from you in direct competition, talking from day one with your customers!

Appropriately worded confidentiality clauses can help provide you with the protection you need to stop this and if it does happen a better legal footing on which you can take action.

Notice Periods: This is an area where the law definitely does not support a business owner. Let’s say you had an employee working for you, who decided to leave after 8 years. This employee has supported you in developing your business, has a depth of knowledge that others do not have. How much notice would they need to give you?

Without a clause in a contract, one week! That’s all, and there is nothing you could do about it. NO time to arrange a replacement, train someone else to take over their duties, or let customers know if need be. However, if you specify in the contract what their required notice period should be, say one month, (for more senior or key positions you may want 3 months notice) you do have the opportunity to prepare for their departure.


Garden Leave: On the subject of notice you may also want the right to send someone home and stop him or her from coming in to the workplace. Maybe there is the potential for disruption at work, you’re not sure if they are going to be productive or you have given them notice. If you don’t have a clause in their contract they have every right to attend work, even if you don’t want them there. And, if you do stop them coming in they can claim that you have breached their contract as you have removed their right to work! However, just because you have a garden leave clause doesn’t mean you have to use it and an employee cannot demand to be sent on garden leave.

Pay in Lieu of Notice: The final piece on notice is pay in lieu, this option allows you to let an employee go immediately and pay them whatever notice period is in the contract. You might think that all employees would want this? Well, yes and no. Certain rights in employment law are dependent on the length of service, so it may be in an employee’s interest to stay with you to achieve the extra service. More importantly from a business owners perspective it provides another element of control over the employment relationship.

Job Duties: One of the most common causes of disputes in the workplace is when there is a disagreement over what the employee is actually employed to do for you. Becoming embroiled in the ‘you said or he said’ conversation usually results in disruption in your business you could well do without. Now, you don’t need to list every last activity in minute detail but providing a number of key duties will certainly help. Best of all is to have a separate job description, which goes in to detail as to what is expected. If you do this don’t think you restrict yourself to exactly what is written down, you can also include a sentence that allows you to request other duties as and when required

Benefits: It is a very good idea to let every employee know what benefits they receive whilst working for you. ‘But I don’t really provide any benefits’ well in this instance let them know what you do. If for example you don’t pay sick pay but rely on SSP put it in the contract. At the least, you have removed any ambiguity and if they are not sure it is far easier for someone to ask for clarification on something that is written down rather than asking a fellow employee or in one case I have seen asking a friend down the pub what they get!

References: Many employers take up references from previous employers to gain an indication of what their new employee was like in their old job. However, you need to ensure that you have clause in the contract, which enables you to end the employment relationship if you receive an unsatisfactory reference. Finding out that someone was dismissed for theft after installing them as your new book keeper and then having to pay them notice to end the contract is certainly not cost effective.

I hope that I have provided a number, (and these are by no means the only) reasons as to why there is really no benefit to NOT having a Contract of Employment, as it helps support your business from the outset. Likewise, waiting 2 months before issuing a contract doesn’t provide you with any advantage. Even if you have a probationary period this can be built in to the contract and allows you to take greater control of the employment relationship.

Generally speaking employment legislation is weighted against the employer and anything you can do to protect your business interests will not only save you valuable time, but could also avoid unnecessary costs.