Blog
7 protective clauses your contracts may be missing
Your business employment contracts are essential to ensure role certainty, staff productivity, and to protect your business interests. In this specialist guide, we explore the extra protective clauses you can add to safeguard your organisation.
When faced with employee issues, your employment contracts can either protect your interests or put you in a difficult spot. It’s essential they're clear, carefully worded, and contain everything they need to cover the many eventualities that might occur.
On top of the information you must legally include, what clauses should your employment contracts contain to strengthen your position as an employer? Here are the seven you may want to consider.
1. Lay-off clause
As an employer, you can't lay off employees (send them home unpaid) during periods where there is a temporary shortage of work, unless the contract permits this. This is because contracts will normally state that you will pay the employee for working a certain number of hours each week, and you're contractually obliged to provide this work and pay.
It’s sensible to insert a lay-off clause to cover situations where there is an unexpected downturn in work. Contrary to popular belief, lay-off clauses aren’t just useful in the manufacturing sector, where there may be fluctuations in work; they can be a godsend for any business that finds itself unable to open due to, for example, a fire, flood or pandemic.
If you don't have a clause in the contract allowing you to lay employees off in circumstances like these, then you may be required to pay employees despite having no work for the them to do, which may add further insult to injury when unforeseen situations arise.
If you can’t provide the work promised under the contract and you don’t have a lay-off clause in your contracts, the only alternative would be to consider terminating the employment on grounds of redundancy.
A lay-off clause gets around all of this by allowing you to temporarily offer no work, the employee won’t be entitled to any contractual payment but may be entitled to a small statutory payment of up to £38 per day for five days in any three-month period.
Related Content
FREE WEBINAR
Contracts and Handbooks Made Simple | Advice for Small Businesses
FREE GUIDE
Definitive Employer's Guide to Contracts of Employment
BLOG
Restrictive Covenants | Can Ex-Employees Ignore Unreasonable Elements of a Clause?
GET SUPPORT
Specialist Support with Your Contracts & Handbooks from WorkNest
2. Payment in lieu of notice (PILON) clause
If you want to dismiss an employee, you will need a fair reason to do so, and to follow a fair procedure. You will also need to give the employee a certain amount of notice, as stated in their contract.
A payment in lieu of notice or ‘PILON’ clause gives you the option to terminate the employee’s employment immediately, provided you pay them for the period of notice they would have been required to work. This is desirable when you would prefer the employee to leave right away.
While employers sometimes take it upon themselves to pay employees in lieu of notice without a PILON clause in the contract to expressly permit this, it’s always safest to have one. Otherwise, you could be breaching the contract by not allowing the employee to work their notice. This could mean you lose your rights to enforce other contractual clauses, including any post-termination restrictions (see point 5).
3. Employer notice period clause
Many UK employers are under the mistaken impression the length of notice they must give to an employee under their contract must mirror the length of notice the employee is expected to give them if they wish to resign. For example, if you require the employee to give a month’s notice, you may believe the employee is entitled to a month’s notice if they're dismissed.
This isn't the case and it could result in you keeping somebody employed for longer than is necessary or paying out more than you have to if you wish to evoke a PILON clause.
There are legal rules regarding the minimum amount of notice you can give to an employee to terminate their contract. The legal minimum notice is:
Less than one month’s service – no notice
At least one month but less than two years' service – one week's notice
After that, one week's notice for each year of service up to a maximum of 12 weeks' notice
For instance, if an employee has worked for six years and six months, they are entitled to at least six weeks’ notice. You can choose to give them more, but you can’t give them less than this.
It's usually in you best interests to state in the contract if you need to terminate the employment, then the legal minimum notice periods will apply.
After all, you're most likely to dismiss an employee due to poor performance or acts of gross misconduct, and in these circumstances, you won’t want the employee to be on your premises any longer than necessary. In fact, you would probably prefer them to leave immediately and pay them in lieu of their notice rather than allowing them to work their notice. By including the legal minimum notice periods in your contract, you will keep any PILON payment to a minimum.
4. Deductions from salary clause
As the name suggests, these clauses allow employers to make deductions from an employee’s salary if they owe money to the company. They can be used, for example, to recoup overpayments in holiday pay or to cover the cost of lost or damaged company property.
You can't usually make deductions from salary unless the contract permits this. There are statutory exceptions to this, for example recovering overpayments, tax, or court orders. It's an important clause to include in the contract.
5. Post-termination restrictions ('restrictive covenants')
These are suitable for sales or senior staff, or anyone who builds good relationships with clients or colleagues. In short, they prevent former employees from ‘poaching’ these people, thereby protecting your commercial business interests.
A word of warning: post-termination restrictions must be used reasonably. Case law has made clear that they must go no further than is necessary to protect legitimate commercial interests and cannot be used as “an unreasonable restraint of trade”. They're usually for a period of no more than six months after the end of employment.
6. Garden leave clause
This can be another useful clause to rely on when employment is coming to an end. A garden leave clause allows you to insist that the employee stays away from the workplace and doesn’t communicate with customers, suppliers and colleagues during their notice period.
Unlike PILON clauses, the employee is still employed by you during their notice period. This means they cannot go to work for another employer during this time, and you can also ask them to do other tasks at home, such as closing off assignments and preparing a handover.
It can be a useful clause to evoke if you believe an employee may try to poach customers or staff or otherwise cause chaos whilst working out their notice. You don’t have to use it, but it can be a useful card to have in your deck.
7. Mobility clause
Finally, I’d also recommend including a clause in your contract which states that you can change the employee’s normal place of work on reasonable notice, also known as a mobility clause. This gives you the flexibility to move the employee to anywhere within a reasonable area.
Like other clauses in this list, it must be exercised in a reasonable manner, you can’t expect a junior employee to relocate to the other side of the country next week, for example.
One particular advantage of a mobility clause is that it can help to avoid a redundancy payout. Essentially, if you were to relocate your business, you could rely on the mobility clause to require the employee to relocate with you. If they refused to do so, you could dismiss them for gross misconduct, provided the request to relocate was reasonable. Without the mobility clause, this would be a redundancy situation and you might be liable to pay the employee a redundancy payment. Adding this into your contracts could save you a significant sum of money.
Ensure your contracts are watertight with help from WorkNest
When it comes to contracts, it pays to have them drafted by someone who really knows their stuff. Our Employment Law specialists understand exactly what need to contain (and the specific ways clauses need to be worded) to protect your business interests, ensure compliance, and give you the flexibility you need. What's more, we don't just advise, we do the hard work for you.
Whether you have nothing in place or are in need of an expert overhaul, let us give you peace of mind over your essential employment documents so that you're not caught out later. Get in touch with our team on 0345 226 8393 or request your free consultation using the button below.
