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Doctor, Doctor, do I need a written employment agreement with people I hire?

Contract

The short answer is that there is an obligation on employers to give their employees a written statement of certain particulars of their employment (ie their basic employment terms), but beyond that, there is no legal requirement for an employment agreement to be in writing.

However, for a number of reasons set out below, we would highly recommend that you do have a written contract with your employees.

Why is this so important?

Employment is a sensitive area for most people – it’s hugely personal and can often play a big role in one’s living/financial situation, family life etc. The majority of disputes that we see in early stage companies relate to employment matters where relationships have broken down due to poor communication or someone’s rights and expectations not being clear from the outset.

A written contract of employment which clearly sets out both what you expect from your employee and what they can expect from you (as well as information on the procedures to follow in the unfortunate event that a grievance/complaint was to arise, on either side) can really help to ensure the relationship runs as smoothly as possible from the get-go.

So what should I include in the agreement?

You have a legal duty, as an employer, to produce a written statement for your employees within two months of them starting their employment (see S.1 Employment Rights Act, 1996).  This statement must include the following points:

  • the business’s name;
  • the employee’s name, job title or a description of work and start date;
  • if a previous job counts towards a period of continuous employment, the date the period started;
  • how much and how often an employee will get paid;
  • hours of work (including whether or not employees will need to work Sundays, nights or overtime);
  • holiday entitlement;
  • where an employee will be working and whether they might have to relocate;
  • if an employee works in different places, where these will be and what the employer’s address is;
  • how long a temporary job is expected to last;
  • the end date of a fixed-term contract;
  • notice periods;
  • collective agreements;
  • pensions;
  • who to go to with a grievance (and how to complain about how a grievance is handled); and
  • how to complain about a disciplinary or dismissal decision.

You also need to cover: (i) sick pay and procedures; (ii) disciplinary and dismissal procedures; and (iii) grievance policies, but these are usually contained in separate documents or policies which just need to be referred to in the written statement.

Most employers choose to go a bit further than just producing a written statement for their employees and will use their own employment agreements in which they can set out their own terms in more detail, e.g. terms regarding gardening leave (if applicable), intellectual property ownership (IP), confidentiality (confidentiality provisions are usually included here to avoid having to sign a separate NDA/Confidentiality Agreement) and restrictive covenants (to stop an employee running off with the client base, other key employees and setting up in competition up the road).

Most employers have separate templates for:

  • junior employees – this is generally shorter and could be in a simple, letter format; and
  • senior employees – this will be more substantial as you will want to ensure that senior employees who have an in-depth knowledge of your business can’t (as mentioned above), walk straight into the arms of a competitor and take with them any of your hard-earned IP, knowhow or even other employees (these are referred to as “restrictive covenants” and usually contain 3-6 month non-compete and non-solicit provisions).

And what if the individual is not actually an “employee”?

Very good question.  A lot of early stage companies tend to work with interns or consultants/contractors rather than employees as they may not have the budget to support a full salary.  This is absolutely fine and can, in the case of consultants, be tax efficient for both the company and the consultant, BUT (as always I’m afraid) there are three keys things to watch out for:

  1. Make sure that you are not treating a consultant/contractor or intern as an employee – Even if someone is not called an “employee”, they could still be considered such by an employment tribunal. “Employee” status comes with a whole host of statutory rights, including the right to receive the national minimum wage, so it’s important to know what makes someone an “employee”.  Generally, if you’ve got an individual working 25+ hours for you or 75% of their time on your business, and perhaps they receive some kind of benefits (like training) or have very rigid, set hours of work, then you could be danger of triggering employment regulation and the individual could be entitled to claim a whole host of statutory employment rights.  If you’re at all unsure, check with your lawyers – we’ll all used to dealing with this sort of thing on a frequent basis!
  1. When working with consultants, make sure that you have provisions in their consultancy agreement that deal with the ownership of any IP created – Particularly in the tech sector where developers are frequently used on a consultancy basis, this point is crucial. The general rule is that any IP created by employees is owned by their employer; however, IP created by consultants is owned by the individual consultant, which means you could find yourself in the position where someone else owns the key piece of technology that underpins your whole business! Fear not though, there is an easy fix – make sure you include a clause in the consultant/contractor’s agreement that automatically assigns any IP they create whilst working for you to the company … et voila!
  1. Don’t forget about your co-founder – Just because your co-founder isn’t an employee, it doesn’t mean that you shouldn’t have some agreement between yourselves setting out what your expectations are from each other too (this is generally called the “shareholders’ agreement”). Remember when I said that the majority of disputes that we see relate to employment matters? Well, co-founder disputes come in a close second! Don’t wait until it’s too late. Even just sitting down to figure out a list of your roles and responsibilities can lead to interesting and sometimes very awkward conversation which are much better dealt with (and put down in writing) as early as possible.

Published on 8th Jan 2016.

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