Five important clauses to consider including in an employment contract

Section 1 of the Employment Rights Act 1996 lists several terms and conditions which must be included in an employee’s contract of employment, such as pay, training, benefits, and holiday entitlement. However, there are many additional clauses that, while not required by legislation, employers should seriously consider including in their employment contracts. Our Employment Law team today reviews several of these clauses and how they can help protect your organisation.

Deductions clause in employment contract

Under section 13(1) of the Employment Rights Act, it is unlawful to make deductions from an employee’s wages unless the deduction:

• is required by statute;
• is authorised by a provision in the employee’s contract of employment; or
• was previously consented to by the employee in writing.

Including a ‘Deductions Clause’ in your employment contract can allow you to lawfully make deductions from an employee’s pay to cover things such as:

• property damage caused by an employee’s negligence;
• any sums owed by an employee to you, such as loans, advances, or relocation expenses; or
• losses or fines incurred by your business as a result of an employee’s conduct.

If you make a deduction from an employee’s wages without such a clause in their contract of employment, they may then have a claim for unlawful deduction from wages. Having a ‘Deductions Clause’ may also deter employees from engaging in any behaviour that is likely to cause a loss to your business.

Lay-off and short-time working clauses in employment contract

A ‘Lay-Off and Short-Time Working Clause’ allows you to reduce staffing levels during a downturn in business without making your employees redundant. When an employee is placed on short-time working, their hours are temporarily reduced. When an employee is laid-off, they do not perform any work at all, but still remain an employee. Even though a laid-off employee is not performing work, they continue to accrue continuous service and will be entitled to a statutory payment if eventually made redundant.

The effectiveness of having a lay-off and short-time working clause was highlighted by the coronavirus pandemic. Had furlough not been introduced, many businesses may have considered laying employees off or placing them on short-time working. However, without a clause in the employees’ contracts allowing this, you would not be able to lay employees off or place them on short-time working without first obtaining their agreement.

Prevention of the facilitation of tax evasion clause in employment contract

This type of clause prohibits employees from facilitating tax evasion in the UK and abroad, and requires them to report any demands to facilitate tax evasion.

Under the Criminal Finances Act 2017, your company may be held liable for failing to prevent an “associated person”, such as an employee, from facilitating UK or foreign tax evasion. A criminal offence will have occurred if one of your employees has deliberately facilitated the evasion of tax while acting in their capacity as your employee.  

There is a defence to this charge if you can show that you took all reasonable steps, or had in place reasonable procedures to prevent the facilitation of tax evasion. Including a ‘Prevention of the Facilitation of Tax Evasion Clause’ in employees’ contracts, along with implementing an anti-tax evasion policy, may therefore help form a defence if the charge of facilitating tax evasion is ever brought against your company.

Notices clause in employment contract

A ‘Notices Clause’ clarifies which delivery methods may be used to serve a formal notice, and when notice is deemed to have been received. This clause can be useful where service of notice is time-sensitive, such as notice to terminate employment. Without a clause specifying when notice is deemed to have been received, a notice sent by post to the employee terminating their employment will only be effective once the employee has read the notice or has had a reasonable opportunity to do so. It will not be immediately effective if it is delivered to their address and they are not there. This rule can affect an employee’s termination date, which may in turn impact any benefits or rights they are entitled to on termination.

You can reduce uncertainty regarding the receipt of notice by including a clause which states that notice will be deemed to have been received at a certain time after posting, or when it is left at the employee’s last known address.

You can also specify whether other methods of delivery, such as email or fax, are acceptable methods for delivering notice.

Entire Agreement clause in employment contract

An ‘Entire Agreement Clause’ identifies the express contractual terms of the agreement and prevents pre-contractual statements from gaining contractual status. This clause can be useful where there were pre-contractual negotiations, or where the contract is replacing an older contract of employment.

This clause will often also limit liability for misrepresentation if the employee was persuaded to enter into the contract by a representation that was made to them pre-contract (for example, in an interview or via the job advert).

If you have any questions about including the above clauses in your employment contracts, or about whether your contracts are fit for purpose, contact our Employment Law Team on 023 8071 7717 or at employment@warnergoodman.co.uk.

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ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.