Employment Contracts

What does an employment contact do?

An employment contract governs the relationship between an employer and its employee and sets out the key rights, duties and obligations of each party.

Does it need to be in writing?

No. It is mandatory, however, to provide an employee with a written statement of employment within two months of the date on which they start work. This can be incorporated into the employment contract. By producing a written contract with clear and precise language, both employer and employee obtain clarity on what is agreed. This reduces the risk of disagreements which creates a more stable working relationship. That stability not only benefits the employer and employee but also makes the business more attractive to lenders and investors.

What key details should it contain?

Some of the key details that should be set out include the employee’s role, general duties and remuneration. Depending on the seniority of the employee, it might be appropriate to include provisions preventing a former employee from setting up or joining a competing business for a fixed period of time. This period must be reasonable and not unfairly restrict trade. If a court decided that the period was too long and unfair, then it would become unenforceable. Similarly, it might also be appropriate to prevent a former employee from soliciting existing staff away from their jobs to join a different business.

How does it usually deal with termination of employment?

There is a risk of a person no longer acting in their employer’s best interests after they have been given notice of termination. A person might no longer perform well, attempt to entice away customers or clients or gather confidential information. All of these scenarios could cause significant harm to a business. Accordingly, it is sensible for an employer to reserve the right to pay an employee the salary that they would have received during any notice period instead of requiring them to continue to work during that period. Alternatively, the employee could be given notice of the termination of their employment but placed on gardening leave. This means that they no longer have to perform their role but are still employed and must comply with any obligations contained in their employment contract, such as not being employed by another business.

Are there any rights and obligations implied by law?

Yes, there are certain rights and obligations that are implied into all employment contracts by law such as the right to a minimum notice period and to work in a safe environment. This means that those rights and obligations apply without needing to be set out in the contract.

Directors’ Service Agreements

What does a director’s service agreement do?

A director’s service agreement is similar to an employment agreement but is a separate type of document. It will contain many provisions set out in an employment agreement, as well as certain provisions specific to directors.

What are some of the key provisions of a director’s service agreement?

A director’s remuneration is likely to be more complicated than just a salary and will probably also involve benefits, share options, bonus entitlement and payments on joining and leaving the company. This should be set out in detail.

It is important for there to be a smooth transition when a person ceases to act as a director and to avoid non-cooperation bringing business to a standstill. This can be achieved by including clauses that deal with a director’s voting rights and the transfer of their shares in the company. It is usual for a director not to be required to work during their notice period because they will continue to have access to the company’s most sensitive information and have ongoing close contact with its key clients, customers and staff. For the same reason, it is usual to protect the company’s intellectual property and confidential information and require certain steps to be taken on termination.

Back to all guides


Get in Touch

We are here to help you move forward and do the hard work for you. Please get in touch with us today.