What is... an employment contract?


As your business grows, you may need to start thinking about taking on employees. At this stage, you’ll probably spend a great deal of time thinking about the job description for your new role and how you’ll go about advertising and interviewing candidates. However, it’s equally important to give careful consideration to your employment contract.

Why is an employment contract important?

An employment contract is important because it sets out, in writing, the agreement between you and your employee. Without one, it’s very hard to prove that an employee has breached the terms of their employment. Worse, should an employee take you to a tribunal and show that you failed to provide them with a full employment contract, your business could be fined up to the equivalent of one month’s worth of that employee’s pay. So, by signing the contract, both parties agree as to how they’ll conduct themselves during the employee’s time with the business, and in some cases, beyond. The contract also protects both parties in the event of a dispute, so long as the clauses are compliant with contract law.

What goes into an employment contract?

At the very minimum, an employment contract sets out:

  • the employee’s job title and main duties
  • working hours and main place of work
  • the salary and remuneration package/bonus scheme
  • details of holiday entitlement and working hours
  • sick pay
  • notice periods
  • the employer’s dismissal and appeal process
  • which courts will deal with any legal dispute

Depending on the role, and the type of information your employee will have access to, you may need to add in additional clauses to protect your business if and when the contract is terminated. For example, many employment contracts today have non-compete clauses. Typically covering two years after the employee leaves, this clause prevents them from working for rival organisations, who would benefit from the employee’s inside knowledge of your business and client relationships. It would also normally prevent them from setting up in competition with you, using valuable information that you’ve paid them to acquire. Non-compete clauses have to be realistic and justifiable. If contested, the courts are unlikely to uphold over-restrictive clauses that prevent a person from earning a living.

IT security and internet usage is another area you may wish to consider in your employment contract. Use of insecure websites could put your systems (and with them, private data about you and your customers) at risk of theft. The reputational and financial, not to mention legal, costs of eventuality are incalculable. Think too about how your employees might conduct themselves on social media. Unfair dismissal tribunals involving instances where employees have posted comments critical of their employees or colleagues (and even clients!) on sites such as Facebook and Twitter are increasingly common.

Getting started with your employment contract

These are just a few of the things you’ll need to consider before presenting your potential new recruit with an employment contract. You’ll also need to ensure that it’s legally enforceable. Don’t leave it to chance. Get started on your employment contract now with the Smarta Law Assure legal document tool. Law Assure allows you to create nearly 130 legal documents online. Try it free now.

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