Each month during 2017 we will look at a specific term of the employment contract, consider how it works, why it is needed, any common issues which arise in practice and offer some drafting tips.
Background: why does the employment contract matter?
Any employer who has faced a contractual or other dispute with an employee or ex-employee will appreciate how important it is to get the drafting of the employment contract right. A well drafted contractual term can greatly assist an employer in avoiding litigation and saving costs. In fact, a clear and comprehensive employment contract can be one of the best ways to protect a business.
However, there are no second chances to include helpful provisions. The drafting has to be right from the start of the employment relationship and, all too often, employers simply fail to include relevant drafting which would avoid disputes or make termination of employment an easier process.
Breaking down the contract
In this series of articles we will offer advice on avoiding the common pitfalls. Later in the year we will cover various clauses of the employment contract including: holidays, pensions, PILONs, variation and mobility, bonuses and restrictive covenants.
Our first article of the year starts at the very beginning of the employment relationship and considers conditional offers of employment and probationary period clauses.
Even before the employment relationship begins there are certain pre-employment checks which the employer may wish to make or, in some cases, is legally obliged to make, before taking on an employee.
While there is generally no legal obligation to do so, an employer may ask for references from the candidate's previous employers to assess their reliability and suitability for the role.
Therefore, an offer should be made conditional upon the result of the required checks and/or references being satisfactory to the employer. The conditions should be clearly set out in any offer letter. If the conditions laid down by the employer cannot be satisfied then the offer of employment will fall away.
Employers are obliged to carry out right to work checks on all new employees and it is therefore essential that any offer of employment is made subject to the receipt of appropriate evidence. For some positions, there may also be legal or regulatory requirements for the employees to hold particular qualifications or they may be required to undergo a satisfactory Disclosure and Baring Scheme check.
It is possible to express the conditionality of an offer in employment contract itself, but it is far clearer if the employer explains the conditions to which an offer is subject in a covering letter, making it clear that the contract will only bind the parties once the relevant conditions have been satisfied.
The extent to which conditions met at the outset of the relationship (such as the right to work in the UK or holding a particular qualification) must continue to be met throughout the employment relationship, should be made clear in the body of the contract itself, stating that there is a right to terminate the relationship in the event a relevant condition ceases to be met.
While an employer can also use the offer letter to highlight certain key terms, such as salary and holiday entitlement, it should be made clear, in the event of any inconsistency between the two documents, which will prevail. Alternatively, an offer letter could simply refer the candidate to the draft contract for key details.
Not all employment contacts will contain a probationary clause, but these can be a sensible means of ensuring the employee is aware that there is a set period during which their suitability for employment in their new role will be assessed. In addition, a probationary period can enable the employer to delay the provision of certain benefits such as company sick pay or enhanced maternity pay entitlements until it is confident that the new hire was the right choice.
Contrary to popular belief, probationary periods are not provided for in legislation; they are a purely contractual animal so the employer is free to include such arrangements for probation as it sees fit.
Although employees are entitled by statute to a minimum period of notice, this only applies once the employee has been employed for one month or more. At that point they are entitled to not less than one week's notice. As the minimum notice provided for by statute is far from generous, employers can, and often do provide for greater notice, in the contract.
It is common for employers to apply one notice period during the probationary period, usually the statutory minimum and for the notice periods required to terminate the employment relationship to increase after successful completion of the probationary period.
Employers need to carefully diarise probation period dates. We would recommend that the contract provides for successful completion of the probation period to be confirmed in writing, but managers need to be aware and ensure this is actioned.
It is also sensible to provide for a right to extend the probationary period, at the employer's discretion. Most businesses elect for probationary periods of three months and it is common to provide for the right to extend the period for a further three months, to a total of six.
Next month we will be looking into restrictive covenants, exploring enforceability and key drafting considerations.