7 protective clauses your contracts may be missing

Written by Rachel Holding on 9 November 2021

When faced with employee issues, your employment contracts can either protect your interests or put you in a difficult spot. It’s therefore essential that they are clear, carefully worded and contain everything they need to in order to cover the many eventualities that might occur during the employment relationship.

So, on top of the information that employers must legally include, what clauses should your employment contracts contain to strengthen your position as an employer? Here are seven contractual clauses our Employment Law Team strongly recommend.

1. Lay-off clause

As an employer, you cannot 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 are therefore contractually obliged to provide this work and pay.

It’s therefore 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 do not 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 them to do, which may add further insult to injury when unforeseen situations arise. Had it not been for the furlough scheme, this is a position many employers could have found themselves in during the pandemic.

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 £30 per day for five days.

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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 employers are under the mistaken impression that the length of notice they must give to an employee under their contract must mirror the length of notice that 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 are dismissed.

This is not 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 that an employer can give to an employee to terminate their contract. The legal minimum notice is:

  • Less than one month’s service – no notice
  • After that, one week’s notice for each complete 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 is usually in the employer’s best interests to state in the contract that if you need to terminate the employment, then the legal minimum notice periods will apply.

After all, you are most likely to dismiss an employee due to poor performance or 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.

Therefore, 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.

Employers cannot make deductions from salary unless the contract permits this. It is therefore 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 are 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 therefore 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.

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We combine the service quality of a law firm with the certainty of fixed-fee services to provide expert, solutions-focused Employment LawHR and Health & Safety support tailored to employers.

Call us on 0345 226 8393.

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