Top employment lawyers like Ivor Adair at Slater and Gordon, and Shelagh McKenzie at Cavendish Employment Law, are always on hand if employees run into difficulties with their employers and companies.
But they say that many pitfalls can be avoided if attention is paid to detail before any work contract is signed.
“Be aware that you can achieve good things with good and mature negotiation on a contract. There is a misperception sometimes that it’s a document cast in stone and that to challenge or request changes would be corrosive and jeopardise getting the job,” said Adair. “Not so in my experience. It’s all about understanding the context and what you can push and what’s reasonable.”
So what are the key points you should look for before you sign?
Job description and responsibilities
“The first thing to focus on is the job description. That can be relevant for all sorts of reasons,” said Adair. “Getting the status right is key, and understanding where that fits within the organisation is important. What you want to do is ensure that your job description meets with your expectations but is also based in reality, so that you’re not signing up to something which means you could be moved around the business and given work that’s inappropriate and inconsistent with your status and expectations,” he added. And getting things right at the start could have important implications further down the line. “It can have an impact at the tail end of the employment relationship because it may have an impact as to where you fit within a redundancy pool,” cautions Adair.
Salary and benefits
“If there’s any chance of negotiating salary, this is when to do it,” said Adair. “Educate yourself about the market, and push for what is reasonable.” It’s often easy to forget that there are additional benefits you can negotiate for. “Find out what benefits are available within the business generally and that might include private medical, permanent health insurance benefits – more technically called employee income protection,” he said. “On that point it’s usually critical to ensure… that there’s no clause in the agreement that would give the employer an express right to dismiss you on the grounds of health.”
Failing to ensure this could mean you might lose your health insurance benefits. It is also important to get as much clarity on other bonuses as possible. “Be aware that very often bonuses are discretionary and you might want to get some more certainty as to how that discretion will be exercised and what that process will involve. What can happen is that you have an expectation of a bonus but it turns out that on the contractual interpretation they can you pay you nothing without breaching your contract,” said Adair. “Also be wary of any clauses that would seek to claw benefits back that have been paid to you in the event of some occurrence.”
Shelagh McKenzie adds that it pays to have the “difficult conversations” while contracts are being negotiated rather than when things go wrong. For senior employees in particular remuneration is normally split between a fixed amount and benefits. “The fixed amount will be your basic salary every month and your benefits and then the variable amount is usually structured as a bonus or long term incentive plan, for example stock options,” she said. But it’s important to check what happens in the event of termination, she argued. A typical problem in relation to bonuses is that it will be paid from 1 January to 31 December but if an employee gets made redundant partway through the year, it’s good to know in advance how the bonus will be worked out. “It’s important because quite often with senior employees their bonus can be worth the same amount as their salary.
“Notice is the contractual obligation to either give you sufficient notice so that you can work that notice out or be paid in lieu. There may be tax advantages on an exit of employment by not agreeing to be paid in lieu,” explained Adair. It is important to know where you stand legally, and to notice any insertions to the contract that would give your employer more leeway, as it is only “sustained serious misconduct amounting to a fundamental breach of the contract or gross misconduct that ought to ever prevent you from being paid notice,” he said. “More often than not the employer will in the notice clause give some examples and reasons for dismissing the employee for gross misconduct. Very often those examples and reasons would not properly amount to gross misconduct at all. So it gives them a way of getting rid of the employee on a lower threshold than the law would ordinarily allow,” said Adair.
An example would be dismissal on grounds of performance, which in common law would not be acceptable unless it was a very extreme case. The employer may also use woolly terms like ‘bringing the business into disrepute’, which can be a contentious issue in the age of social media. “If the contract allows the employer to say you making any inappropriate comments on social media will amount to gross misconduct then you’re in a very weak position because they can do that without breaching the contract,” argued Adair.
Shelagh McKenzie adds that it is important to check the calculation of the pay in lieu notice clause. “Sometimes it only includes your base salary, and that doesn’t include the true value that an employee working their notice they would receive in benefits,” she said. “It can often be significantly less.”
“There can be an issue with garden leave if the notice period is very long and you have skills that would mean you ought not to be in the garden for too long because your skills or profile become stale,” said Adair. “Generally unless the contract provides for an express right to put you in the garden, unless you have committed a serious act of misconduct, there will be no implied right,” he added. If you are going to agree garden leave it’s beneficial to ensure that the garden leave period offsets any post-termination restriction you then agree to (although that is more likely to make those restrictions justifiable and enforceable).
Post-termination restrictions state that at the end of the contract you must not compete with customers or business contacts, you must not solicit former clients or solicit other employees that you work with, you must not deal with any customers or clients that you formally dealt with. “Sometimes frankly those post-termination restrictions are far too long or are too wide in scope given your status and role,” said Adair. “If they are and they are enforceable then you’re rather stuck with them at the end. It could reduce your options.”
Sometimes employees are caught up by entering a company at a junior level and leaving when they are more senior, although legally you can argue for an assessment of the justification of the restriction when you entered it. “In my experience, the general position is if the post-termination restrictions are inappropriate, there usually is scope to get them reduced or modified in a way which is sensible for everyone,” said Adair. “The ones to watch for are clauses that would restrain team moves or non-dealing clauses. Non-solicit obligations are easier to enforce and police,” he added. The danger of breaching them is that an employer can sue for damages or seek an injunction to restrain the breach, which can involve very expensive litigation.
Mobility clause can also be very important as they “can give the employer a power to move the employee, in terms of their role within the business, by saying you will be given new duties or geographically,” said Adair. “That’s a fairly big hostage to fortune because it could mean a change to your entire job, or place of work at some point without that being in breach of contract. It can also impact on whether you are redundant or not and have a right to a redundancy payment in the future. I usually recommended these clauses are tightened up or conditioned, or, depending on the employee’s preferences, removed.”
Shelagh McKenzie adds that “one way to approach geographical borders is to agree on a radius within a certain distance.”
When to hire a lawyer?
There are advantages to hiring a lawyer’s services to help negotiate a contract, rather than at the termination point, said McKenzie. “What is true on termination is also true on entering a new contract – if you don’t ask, you don’t get,” she said. “If you pay a lawyer to enter negotiations and as a result you end up with a contract with shorter post-termination restrictions, or a longer notice period from the business, or a contractual agreement to pay a bonus or a pro rata share of bonus or long term incentive awards in the event of termination by redundancy or ill health, then the investment in fees at the outset could pay off at the date of termination.”
In practice, employees tend to pay for “behind the scenes” advice, rather than introduce a lawyer at the outset of a new employment relationship. “We review the contract and give the suggestions on how to position their negotiations,” she said.
Nicola Smith has spent a decade reporting for The Sunday Times on both the European Union and South Asia.