Before you sign on the dotted line: how to read employment contracts

Posted: 30/01/2023

Contracts may be tedious, but they are crucial to establish the basis of your employment relationship.

You may be feeling elated because you’ve been offered a new job. When the contract arrives, you may be tempted to check that the salary is what you’ve discussed and that the job title is correct; however, you shouldn’t just skim the more detailed aspects of your employment contract and simply sign up.

It’s always best to read and understand what you are signing. These documents usually contain legal jargon and difficult-to-understand information, so read on for a simplified list of things you should look out for.

If there are any terms you don’t understand in your contract, make sure you get it checked by a solicitor before signing. Your contact may even state that you have had the opportunity to do so, particularly regarding your understanding and agreement to stringent post-termination restrictions, such as non-competes.

Check the basics...

Start and end dates 
You must have a beginning date and an end date for your employment (either a fixed-term or an open-ended contract but with an agreed notice period) - otherwise, it’s just an offer letter. Check that these are correct as they may be important at the end of your employment, especially if there is a dispute and you wish to assert your rights to eg unfair dismissal (you will generally need two years’ service for an unfair dismissal claim).

Compensation and benefits
What’s your base salary? Is the bonus guaranteed or discretionary? Who decides whether you’ve met the criteria for a performance-based bonus? How objective are those criteria? Are benefits guaranteed or changeable at the whim of the employer? Does your employer have the right not to pay a bonus if you are on notice when the bonus is due to be paid?

Your contract should tell you how and when you will be paid your salary, and the stipulations for any bonuses, incentives and travel expenses.

Make sure all types of compensation, including car allowance, pension, health insurance, equity or share options, bonuses and commission payments etc, are detailed in the contract and are as you have discussed with your new employer.

Job description and responsibilities
If you agree to be locked into a job for years, be sure it’s the job you think it is. The job description is essential because it defines the scope of your exact role and what duties your employer can or cannot require you to do. Check the job description if attached and ask for one if not. Where there is a provision for you to take on additional roles and responsibilities, discuss this to ensure you don’t end up with a different job from the one you agreed to.

Place of work
If you have agreed to work in a wide geographical area, for example, other offices, locations elsewhere in the UK or even abroad, your employer will be in a strong position if you object to a move at a later stage. Also, your rights to a redundancy payment could be adversely affected if you refuse to work in a new location, having previously agreed in your contract to do so.

If working remotely at home is possible, or you expect a hybrid working arrangement, then the contract should reflect this. Ensure that you and your employer agree on the number of days you will generally be spending in the office.

Hours of work
Don’t agree to a working pattern that you will later regret. It’s best to negotiate a variation at the outset, including the possibility of flexible working if this is the only way you can get the job done.

As well as hours of work, check whether there are any shift patterns, including whether you are required to work weekends or evenings, and if so, for what days and for how long? Also, check if you are being asked to ‘work all the necessary hours that the job entails’, and if so, what is expected.

Also, check if you’re required to do overtime and if you will be paid for this.

The tougher clauses...

The most ‘employee unfriendly clauses’ of your contract are usually in the middle to end of the contract, so don’t stop halfway through. These clauses will typically contain technical legal jargon, so, understandably, employees just scan them, but clauses of this type often cause the most issues for employees when they wish to leave.

Cause for dismissal or termination of your employment
Check your notice periods. Are they acceptable, or are they too short or even too long? A notice period that is too long could hamper your ability to take up a new job, and too short a notice period may not give you enough stability.

What are the grounds for dismissing you with and without notice? Are they acceptable? If you have been found guilty of gross misconduct, your employer can terminate your contract without giving a notice period. However, the terms that constitute gross misconduct should be written into your contract or staff handbook.

Is there a probationary period? How long is it for?
Can your employer extend the probationary period if they choose to? You should resist excessively long probationary periods of more than six months. It shouldn’t take your employer longer than this to determine your suitability and capabilities in the role. If you’ve been asked to carry out a probationary period, the notice period will be much shorter during the probationary period, and your employment is therefore much more uncertain.

Restrictive covenants or post-termination restrictions
These provisions are not uncommon and are often standard in most industries, and certainly at the more senior levels, but it is vital to make sure that you understand the breadth of the restrictions and, if you are unable to negotiate them out or down, that you are getting enough in return to make it worthwhile.

It’s easy to brush over ‘restrictive covenants’ or ‘post-termination restrictions’ when signing a new contract because they are only relevant after you have left. But your future job prospects or your career development could be hindered if they are too restrictive, especially if you are expected to transfer your clients to your new employer when you leave. Any personal clients or customers you introduce to your new employer may become integrated into your employer’s client base and form part of your restrictive covenants when you leave unless your contract says otherwise.

Non-compete clause
Beware of signing any agreement that bars you from working for a competitor for a considerable period after the end of your employment. Non-compete clauses and clauses preventing the solicitation of clients and/or employees clauses can be included in a contract to protect the legitimate interest of your employer’s business but must be reasonable and not overly restrictive, or they would amount to a restraint of trade, meaning they prevent you from developing your career in your chosen field.

During the Covid-19 pandemic, the government considered restricting non-compete clauses in employment contracts to increase opportunities for people to start businesses and find work to help the economy. As a result, the government launched a consultation on the reform of non-compete clauses, asking specifically for views on whether they should be enforceable only if the employer provides compensation or whether they should be banned altogether. The government has yet to publish the responses to this consultation, so non-compete clauses will remain for the foreseeable future. 

Non-solicitation and non-dealing of clients
Look for post-employment restrictions on your ability to do business with people you’ve worked with during your employment. This type of clause seeks not only to prevent you from taking your clients to a new company but also from dealing with them if they choose to follow you. Often employers will overstep the mark on these clauses, knowing or suspecting they are not likely to be enforceable. It is best to take advice on whether to leave an unenforceable restriction in a contract or carve them out at the outset for clarity.

Copyrights and inventions
Your employer may make a claim to the output of your creative efforts, even if you work on a side project outside your employer’s premises and outside of work hours. If you invent anything during your employment, the intellectual property generally belongs to the employer. If you are working on something before starting employment, particularly if it is quite aligned to your role, you may want to notify them of that and carve it out, so it is not included in the company’s right to ownership of your intellectual property.

Other employment
If you plan to do any freelance work or have a home-based project, be sure the contract doesn’t prohibit you from doing so. In the age of the ‘gig economy’, many people have multiple sources of income from various other jobs and personal projects; however, this is prohibited where there is an exclusive employment provision in the contract.

What if all is not what it should be? Can you challenge the terms of an employment contract?

Yes, and a reputable company should respect you for it. It’s worth asking about terms you have doubts about and, of course, do so before you sign on the dotted line. Once you have signed the contract, you will be in a much weaker bargaining position.

If you’d like a review of your contract and some expert advice on the scope of its covenants or any other aspect of your contract or need guidance on negotiating terms, contact Ruby Dinsmore.

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