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When should a contract of employment be executed as a deed?

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A deed is a written contract that must satisfy additional execution formalities to be enforceable. In many cases, employment contracts do not need to be executed as a deed to protect the employer’s interests. However, there may be some situations, such as where there are intellectual property rights the employer wants to protect, where executing an employment contract as a deed may be necessary. Our employment team looks at when a deed is required and some of the formalities in executing a deed.  

No Consideration

A contract must be executed as a deed where there is no “consideration,” or exchange of something of value between the contracting parties. Consideration will almost always be present in an employment context as the employee will be providing their labour in exchange for wages from the employer. However, issues may arise when the employer wants to introduce additional obligations on the employee, such as restrictive covenants, in exchange for the employer simply performing the existing contract. Without additional consideration, the restrictive covenants are unlikely to be enforceable and should therefore always have specific consideration assigned to them such as a pay raise, lump sum, or other additional benefit. As an additional precaution, employers may also wish to execute such a contract variation as a deed.

Creating a power of attorney

The most common reason for executing an employment contract as a deed is that it contains a power of attorney. A power of attorney is a formal appointment where one party (the donor) gives another the power to act on the donor’s behalf and in their name. Employers will need a power of attorney clause in their employment contracts to give effect to intellectual property protections, or to procure the transfer of shares or resignation of office after termination.

How do I execute a contract as a deed?

There are four main requirements for a contract to be executed as a deed. The deed must be:

  1. in writing;
  2. clear on its face that it is a deed (the face value requirement);
  3. validly executed as a deed; and
  4. delivered.

The face value requirement will usually be fulfilled by standard wording at the beginning or end of the contract stating that the contract is a deed. For example, “This deed is made on…” or “Executed as a deed by…” would usually fulfil this requirement.

For a contract is be validly executed as a deed it will usually need to be witnessed. Where the document is executed by an individual the deed will need to be signed by the individual in the presence of a witness who attests the signature, or at the direction and in the presence of an individual and the presence of two witnesses who each attest the signature. Where the deed is executed by a company it will need to be signed by two authorised signatories or by a director of the company in the presence of a witness who attests the director’s signature.

The witnesses to a signature do not need to be independent or disinterested. A signatory’s spouse, civil partner, or other co-habitee could act as the witness, though having an independent person witness the signature is preferable as a matter of best practice. The witness should also be physically present when the deed is signed.

A deed becomes binding from the date of delivery. Usually, a deed executed by a company is deemed to be delivered on execution unless a contrary intention can be shown.

If you think that your employment contract contains clauses that require it to be executed as a deed, contact us for advice. You can reach the Employment Team by calling 023 8071 7717 or emailing employment@warnergoodman.co.uk

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.