How to Craft the Perfect Employment Contract

HR Insights for Professionals

HR Insights for ProfessionalsThe latest thought leadership for HR pros

Wednesday, October 23, 2019

Crafting an employee contract can be a tricky affair, but there are a number of common details that every contract should include.

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The contract of employment is one of the most important documents for any business. Organizations must therefore ensure they’re including the correct level of detail and information to protect themselves and their employees against future disagreement and possible litigation.

Here are some key points of information that every contract of employment should include:

Written statement of terms

At the core of any employee contract should be a detailed statement of terms. This should include:

  • Names of both the employer and employee
  • Working hours
  • The date on which employment commenced
  • Notice period
  • Holiday entitlement
  • Detailed pension information
  • Statutory sick pay
  • What to do if the employee can’t work

The information provided should form the basis of the employment contract and will be a legal reference which both the employer and employee can refer to in future. As such, it must be as in-depth as possible and adhere to all legislation and regulation around employment terms.

Compensation and responsibilities

In addition to personal information and details of employment, the contract should set out salary and payment information (annual amount and when the employee will be paid), as well as details around their role, title and responsibilities.

This information should clearly state all aspects of the employee's remuneration package, including basic wage, bonus payments (and what these hinge upon), commission and other non-salaried benefits.

The role of the individual should also be clearly defined, including what their specific function will be within the business and what are their reporting lines.

Termination clauses

Setting out clearly the expected behavior and conduct of employees is important, so any information around practices that will result is termination must be as transparent as possible. Employers should consider four different types of termination:

  • Voluntary termination
  • Termination for cause
  • Termination for convenience
  • Constructive termination

These clauses will explain the process of what happens should a person choose to leave a company themselves, the process for termination should they fail to adhere to other aspects of the employee contract (such as poor conduct) and detail around what would constitute a material change in their role in future.

Non-compete and non-solicit clauses

Companies will often want to protect themselves from conflict with former staff by introducing non-compete and non-solicit clauses. This will protect them from losing business to any former employee.

As a result, non-compete clauses should detail a set time period when the individual is barred from joining a competitor, often known as 'gardening leave'. One thing to consider, however, is that should the company hope to enforce this clause, they’ll need to provide sufficient severance pay to cover the period stated.

Meanwhile, a non-solicit clause prevents the employee from attempting to recruit other members of staff or take clients with them when they leave a business.

Ensure all contracts are up to date

It's important to update employee contracts regularly. This should be carried out whenever a person has a change in role or there’s a material change to the terms of their employment, such as a pay rise or promotion.

Keeping contracts fully up to date is essential to ensuring they remain in line with existing employment regulation and legislation, as well as providing a clear outline of responsibilities and expectations for both parties.

Failure to keep employee contracts up to date can result in disputes further down the line, especially when an individual's role or responsibilities change and isn’t reflected in their terms of employment. This is a situation which can be easily avoided when the contract is contemporary to the person's role.

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