A couple of weeks ago we wrote about the need to make sure your employment contracts are up-to-date. We wanted to follow that up with a more detailed post on the importance of employment contracts.
We regularly come across companies where employment contracts are not being issued to employees. Some businesses are able to get away with it for many years as long as their employees are happy with such arrangements although do remember that you are required by law to issue your employees with a Written Particulars of Employment document within 2 months of the start of employment. The change to having a formal contract usually takes place once there is a dispute or an employment relationship breakdown with any employee and a result of which the business finds itself in a situation where it is not well protected.
Why do businesses need Employment Contracts?
In the ideal world no business would ever get into any disputes with their employees but unfortunately, as HR professionals – we get to see it happen again and again. The common reality is that employers often are left with additional charges or the requirement to compensate the employee for not upholding their employment rights in the first place.
Even the simplest of employment contracts in most cases can offer protection for the business as well as help set out the key terms clearly so that both the employer and the employee are fully aware of the arrangements in place.
As an analogy, we could look at this like at having a Prenuptial Agreement. If the marriage goes well and there are no disagreements, then it is never used but if things go wrong, then having it saves a whole lot of headache and heartache for both parties involved. So as a business you always have a choice to engage in an employment relationship with the hope that it will all go smoothly or with an understanding that it might break down and being prepared will make such a big difference.
What benefits are there for the employer?
Clarity of Expectations
Firstly, having a written contract in place besides being a statutory requirement, also offers the benefit of clarity of expectations for both parties. For example, overtime rates could be an area of disagreement if they are not detailed in a written contract. The expectations for the payments and amounts in employee eyes might be different from those that the employer is willing to offer.
Many smaller businesses start off with being very generous to their employees, as when there are only 3 or 4 of you, having generous benefits feels absolutely right. Then as a business hires more people, they share their knowledge of the benefits and an expectation is created for the new employees. It could be that at this point or a little later in the business growth cycle, an economic decision will need to be made about the feasibility of the benefits on offer and appropriate adjustments are not uncommon. This is where a written contract that spells out the benefits and entitlements is extremely beneficial as then the new starters are absolutely clear about what entitlement they have.
Terminating a contract of employment is never a pleasant experience and having a few of the essential clauses in writing allows for greater operational flexibility for the business. This applies of course to the notice period requirements that are agreed for both parties.
If you have an employee who is a great performer in a senior role resign and you do not have a written contract in place, they could just give you a statutory notice which can be absolutely not sufficient to allow for a thorough handover.
You could also want to let go of an employee and not have them work their notice or be on site during their notice period but offer them a payment in lieu of notice. Unfortunately, without having a written down payment in lieu clause within your notice provision, you would not be able to utilise this option. This is where a business can find itself stuck in a situation of not being able to utilise full operational flexibility.
Essential Business Safeguards
Thirdly, additional clauses such as restrictive covenants, copyrights, confidentiality, etc. offer the business protection that always proves to be more than invaluable. How many times have we seen situations where business entrepreneurs start their own businesses and then see their right-hand person go off and start a competing one and take most of their clients with them. Or how many times has a client come to us to seek help with a situation where their key performer has gone off to work for their biggest competitor.
The reality of such situation is that unless there is a clear contract of employment that covers all of these aspects in writing, there are not many things that can be done.
Don’t Wait till Something Goes Wrong
Ultimately, a contract of employment is like having a safeguard which you hope you don’t need to use but should things go wrong – you are confident that you have a firm foundation. I guess it’s like a life vest on a plane – luckily, we rarely get to use it but if something happens and we need to use it – then we are eternally grateful that the airline was prepared in advance.
Don’t wait until something goes wrong to put in a solid grounding for your business especially since you have already invested so much into it. We at Lighter HR Solutions are experienced working with businesses in a variety of industries and preparing contracts of employment that offer effective business protection and a solid legal grounding.
If you would like to get an employment contract for your business or make sure your existing one offers you the best protection possible, just give us a call on 0203 319 1649 and we will be glad to support you with this.
Be Prepared and Ready for Anything!