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Employment contracts: 7 common mistakes

Most employers know that there is a large amount of protection afforded to employees. But, there are limits if the employer ceases them. Opportunities are missed by employers and we see this daily.

To help employers we have picked out a selection of most the common but avoidable employment contract mistakes.   

1.Employment contract and employment policy distinction is not made

An employment contract is no different from any other type of contract in as much as with a contract, once it’s concluded, neither party can unilaterally alter the terms without the other’s consent. This means a lack of flexibility for employers and inherent risk of breach of contract.

The best way to achieve flexibility is to operate in addition to the employment contract policies and procedures which are non-contractual.  The benefit of a policy is that the employer can expressly reserves the right to alter the policy at its sole discretion.  Get out of jail cards are handy.

  • The mistake made by many employers is to merge contacts with policies and lose the benefit of flexibility.

2. Employment contract template has gaps

Having a standardised employment contract for all staff may prove to be a mistake.  There are different responsibilities and obligations on directors compared with employees.  There are various key terms an employer needs for directors which are not applicable for employees.

The template may fail to include provisions which could be handy in practice.  Examples include the ability to exclude employees from the premises if gross misconduct is suspected.  Another mistake will be if the employment contract template does not address the assignment of any intellectual property created by the employee.

  • The mistake is a generic template does not protect the employer from vulnerability at any level.

3. Employment contract uses the wrong label

Employed or consultant?

Simply stating that a worker is self employed or a consultant is not enough. They could be found in reality to be an employee and enjoy associated employment law rights which is an unbudgeted cost. The substance of the relationship, either at the outset or as it evolves practically will determine the status.

  • The mistake made by employers over status often comes to light when the tax treatment of payments is reviewed by HMRC.  Employers can find that they are liable to PAYE but have no means of recovery from the individual.

Flexible workers

Part time, temporary or fixed term contract employees do have employment law rights.  But, they are limited compared to full time employees. Employment law is a highly statutory area of law.  Statute will often override the terms of an employment contract.

  • The mistake for employers is to find that what the employer thought was a flexible workforce has employment law rights not anticipated.  The decisions on the “gig” economy creating holiday rights and rights under the Working Time Directive is one such example.

Over extending employment law rights

Another mistake is to blend employment law rights with share rights.  Shares and options carry rights which in law are not protected by employment law legislation.  What this means in practice is the loss of value on shares or options following termination of employment does not have to form part of the calculation of loss for unfair dismissal purposes.

  • The mistake is to extend share rights into employment law rights.

4. Employment contract is out of date

Things change. It is not sufficient to simply put the employment contract in a drawer and only bring it out in the case of dispute. Plan to review your contracts yearly. A good time for updates is before pay review time.  Employee consent to updates is required.  Consent is usually easier to obtain if linked in with some incentive.

  • The mistake many employers make is in the timing for making updates to the employment contract.

Areas for mistakes under an employment contract:

  • Changes in the reporting line.  In practice reporting lines can become quite important where there is the potential for an employee dispute.  Another area where reporting lines come into play is in re-structuring and re-organisations especially if that could lead to redundancy.
  • Updates to post termination of employment restrictions.  As jobs change and the business develops so should the post termination restrictions.  The mistake in not keeping employment restrictions up to-date usually crops up when the employee has left the business taking company assets with him.  Typical company assets are staff, customers, clients and trade secrets.

5. Employment contract is not followed

Whatever an employee may have done or not done, however badly they may have behaved, it’s imperative to stick to the employment contract. An Employment tribunal or Court can make adverse inferences if an employer fails to adhere to its own employment contract and policies.  Certain terms are also implied into every employment contract such as a duty of mutual trust and confidence between the parties.

If an employer decides to depart from the contractual terms at the very least it should inform the employee and give reasons.

  • A common mistake for employers is to overlook that relying upon implied consent can be construed against them.

6. Employment contract is ambiguous

Under UK employment law it is considered that there is an inherent inequality of bargaining position between an employer and employee. Any uncertainty will be construed in favour of the employee. Consequently, an Employment Tribunal or court may well interpret the employment contract in a way the employer did not intend.

7. Employment contract contains no whistleblowing procedure

Legal risks associated with whistleblowing have significantly increased in many industries.  A common mistake of employers is to have no whistleblowing policy in place and no training for managers.  This impedes management which in turn restricts prevention.

Employment contract provisions for managing whistleblowing

A mistake is that when problems emerge, the employer cannot demonstrate vigilance.  The employer should:

  • Regularly review general legal and regulatory compliance;
  • Internally publicise policies;
  • Train managers to apply your policies, handle complaints, and to take preventative steps to minimise complaints of victimisation.

Whistleblowing investigations

If employers endeavour to cover up any allegations, the whistleblower may take the matter up externally.  Obviously something employers want to avoid. A mistake made by employers is to fail to set out in the whistleblowing policy guidelines for employees such as:

  • Confirming that the whistleblower will be appraised of the investigation’s progress, where appropriate;
  • Assuring employees of confidentiality; and
  • Confirming employees will not suffer a detriment or victimisation as a result of making a whistleblowing allegation.

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