Employment Contract Template

Clause breakdown

Clause 1 (Interpretation)
Clause 1.1 sets out the definitions that will apply throughout the employment contract. Clauses 1.2 – 1.5 are standard interpretation clauses that are used in most commercial contracts.

Clause 2 (Term of appointment and probationary period)
This clause confirms that the “Employee” will be employed by the company under the terms of this employment contract until it is terminated by either party giving the other three month’s written notice (subject to clauses 2.5 and 13).

A probationary period is useful from an employer’s perspective as during this time the employer can monitor the employee’s performance and conduct (see clause 2.2), and if the employee is not meeting the required standard the employer can terminate the employee’s employment contract by giving a shorter amount of notice (in this case two weeks – see clause 2.5). This clause will be suitable where the employer operates a standard probationary (i.e. trial) period for new employees.

The suggested six-month period is a common norm. For more junior employees whose performance can be assessed more readily, a period of three months may be appropriate. Employers considering a longer period should avoid using a period of two years or more (or a period close to two years) as there is a risk of the employee accruing sufficient qualifying service to bring an unfair dismissal claim (note further that the qualifying service required to bring an unfair dismissal claim is only one year where the period of continuous employment began before 6 April 2012).

Clause 2.3 allows an employee’s probationary period to be extended by a further three months if it feels that such action is appropriate.

Please note that the clauses relating to a probationary period are only suitable where this template is being used for a new employee – it will not be relevant where this template is being used for an existing employee who has already been employed for some time.

Clause 3 (Employee warranties)
Warranties are effectively contractual promises that a given statement of fact is true. Clause 3.1 means that the employee is providing a contractual promise to the effect that they are able to enter into this employment contract without breaching any court order or any binding obligations that they have for example under another contract.

Clause 3.2 is a standard clause that deals with the employee’s immigration status. The clause contains a warranty that the employee is entitled to work in the UK. It is advisable to have such a warranty within the employment contract in view of the fact that an employer will be liable to a civil penalty if it negligently employs someone who is not entitled to work in the UK and will commit a criminal offence if it knowingly employs such a person. Inclusion of this warranty shifts some of the burden on to the employee (as the employee will be in breach of contract if they are not entitled to work in the UK).

Clause 4 (Duties)
This clause should be read in conjunction with Schedule 1 which outlines the employee’s main areas of focus in performing the role.

Clause 4.1 confirms the employee’s position within the company and highlights that the employee’s main areas of focus in performing the role are set out in more detail in Schedule 1.

Clause 4.2 (a) is the whole time and attention clause. This time and attention clause option requires the employee to devote the whole of their time, attention and abilities to the employer’s business. As the clause requires that the employee devote the whole of their time, attention and abilities to the employer’s business (rather than requiring that they do this just during their normal working hours), it prevents the employee from undertaking other work outside of their normal working hours.

Consideration here should be given as to the appropriate extent of any restriction on outside employment or other interests. The nature of the employer’s business will also be highly relevant to the need for such restrictions.

Clause 4.2 (d) requires the employee to report to the board of directors in connection with the affairs of the company as and when this is reasonably required. This clause will not be applicable in every scenario and can be removed if the employee’s role does not require them to report to the board.

Clause 4.2 (e) is tied in with sub-clause (e) and will need to be amended if the employee is not required to report to the board. The clause is still useful to have, however, and could be amended so that it reads: “report their own wrongdoing and any wrongdoing or proposed wrongdoing of any other employee or director of the Company to a superior colleague immediately on becoming aware of it”. This ensures that a culture of reporting wrongdoing is established and encouraged and that it can be dealt with (once it has been reported) by the appropriate member of staff / employee.

Clause 4.4 requires that the employee complies with any rules, policies and procedures set out in the company’s staff handbook. This clause may not be applicable if your company is newly formed with only a small number of employees and a staff handbook has not been created yet. However, your company should always have some sort of staff handbook that details such things and in which case this clause should be included in an employee’s contract.

Clause 4.5 ensures that the employee cannot claim ownership of company property upon termination of their employment contract. For example, if the employee is given a work phone by the company as it is required as part of their role, this clause ensures the employee can’t claim to have a right to that mobile phone upon termination of the contract.

Clause 5 (Place of work)
This clause is important as an employee’s place of work is significant when determining whether a redundancy arises.

Clause 5.1 confirms that the employer will specify separately with the employee where their main place of work will be.

Clause 5.2 – if the employee’s role does not require them to work from both within the UK and abroad, then the words in the brackets of this clause can be removed. If the employee will be required to travel around the UK in order to fulfil their role, then the words “within the UK” should replace the words in brackets.

Clause 6 (Hours of work)
You should be careful to specify the right days and hours if the employee is only going to be working for the company part-time. This should then be cross checked with their holiday entitlement and their salary will have to be reduced to the correct pro-rata amount.

Depending on the working hours, consider whether an opt-out from the maximum 48 hour working week is required.

Consider adding in wording so that the clause reads “Your normal hours of work are [number] hours per week, to be working during the hours of [time] am to [time] pm on [Monday to Friday] inclusive with a daily paid lunch break of one hour”. Employee’s are entitled to a statutory rest / lunch break of one hour per full working day. There is no legal requirement for this rest break to be paid, however it commonly is.

If the employee is to work on different days than Monday to Friday then the clause should be amended accordingly.

The additional wording confirms that the employee will not be paid for any overtime. This clause allows the employer to require additional hours for no extra payment. This is usually suitable for senior managerial, supervisory or professional roles.

Clause 7 (Remuneration)
Clause 7.1 specifies the rate of remuneration and the intervals at which it is paid (this must be outlined in an employment contract).

Payment is usually made in arrears (i.e. the employee is paid for the month/week they have just worked) but in some industries, payment is partly in arrears and partly in advance. If so, this clause will require amendment to reflect that. Payment totally in advance is rare. The wording ‘on or about’ is important for the employer here as it ensures that there is no breach of contract or unlawful deduction if there is a very minor delay in payment being made.

Clause 7.2 deals with the employee’s salary review. This clause gives the employee the right to a salary review annually but does not give the right to a salary increase. The wording in the round brackets is helpful to the employer because without this, a salary review would still in principle have to be conducted even when the employee is in their notice period (either because they have resigned or because the employer has given them notice).

Although there is no obligation to increase the salary, the employer should not act irrationally or perversely in not doing so. Generally speaking, salary increase criteria should be objective and transparent to avoid discrimination issues.

Clause 7.3 gives the employer the right to make deductions from the employee’s salary if this is required. This clause acts as the employee’s agreement (a ‘relevant provision’) in their contract of employment to deductions from their pay where the employee owes the employer money. The wording “or any other sums owed to the Employee” means that deductions are permitted not only from the employee’s salary, but also from any other payment due from the employer (e.g. from commission, holiday pay or sick pay). These clauses are common practice but an employee may benefit from / insist on additional wording being included to the effect that the employee is notified in advance of any sums due from them, and has the opportunity to object before the deduction is made.

Clause 8 (Expenses)
There is an implied right in the employment contract to recover a necessary expense. This clause is a typical reimbursement clause where there is, as is often the case, a written expenses policy which sets out in detail what expenses are recoverable etc.

Clause 8.2 protects the employer where there is no formal expenses policy in place by requiring that the employee gets the consent of the company to incur the expenses – to avoid the situation where the employee goes out and incurs expense (under the impression that they will be reimbursed) and the company informs them that they are under no obligation to reimburse such costs.

Clause 8.3 can be removed if the employee is not to be granted a company credit card and this is not envisaged at all during the employee’s appointment.

Clause 9 (Holidays)
Clause 9.1 – the standard number of paid holiday for an employee is 20 days. The employer has the discretion to grant the employee more holiday days. Note importantly that the 20 days being granted here are in addition to bank and public holidays. If the employer wants to be able to require employees to work bank and public holidays then this wording may need to be amended to highlight this. The holiday year must be specified under the Working Time Regulations 1998 (“WTR 1998”).

Under this clause, if the employer wants to reserve the right to require employees to work on bank and public holidays a new clause could be added that reads as follows: “You may be required to work on any statutory or public holidays at our absolute discretion, in which case you will receive a day off work in lieu”. Be sure, if including this optional clause, that it is consistent with the holiday entitlement specified in clause 9.1 and any terms about working hours.

Clause 9.2 – During the first year of employment, holiday under the WTR 1998 accrues at the rate of one-twelfth of the entitlement at the beginning of each month. After the first year of employment, holiday does not accrue per month but the employee has a total entitlement available at the beginning of the holiday year – for example an employee could in theory take all of their holiday entitlement in the first month of the year. For this reason some employers limit the amount of holiday which can be taken in any one ‘block’.

Clause 9.3 deals with the notice required to be given by the employee to the employer when taking holiday. Employees are free to choose when to take their holidays but notice must be given to the employer. The contract specifies here that the employee must give three weeks’ written notice of when leave is to be taken.

If the contract is silent on how and when notice must be given, under the WTR 1998, notice must be at least twice as many days in advance of the intended holiday period as the length of the intended holiday and must specify the period to be taken as holiday. For example under the WTR 1988, a worker who wishes to take one week’s holiday must give at least two weeks’ notice of his intention to take that holiday.

Clause 9.4 confirms that the employer reserves the right to require the employee to take holiday on particular dates. The employer can specify when during the year holiday must be taken (e.g. during an annual shutdown period) or when it cannot be taken (e.g. at the financial year end or in busy retail periods).

The WTR 1998 sets out a procedure and timescales for the employer to notify the employee of when it does or does not want the employee to take leave. However these requirements can be varied by a ‘relevant agreement’ (such as an employment contract) and so this clause should be included to give the employer maximum flexibility (though it does state that reasonable notice should be given). Where an employer knows when they need employees to take or not to take holiday (e.g. an annual shutdown in a given month or at another identifiable time, even if exact dates are not yet known) this should be specified in this clause.

The right to be able to require the employee to take holiday during their notice period is particularly useful as it avoids the employer having to make a payment in lieu of accrued but untaken holiday on termination, if all the accrued holiday is ‘used up’ during the notice period.

Clause 9.5 deals with payment for holiday accrued during the last year of employment.

Clause 10 (Incapacity)
This clause could also be called “Sickness”.

An employment contract comprising the statement of particulars of employment must include terms and conditions relating to incapacity for work due to sickness or injury, including any provision for sick pay.

It is up to the employer how many days after the employee returns to work that they are required to sign and return a self-certification form (this template has it at two days as is common).

Clause 10.2 entitles the employee to statutory sick pay only. Please note however that even where there is no express right to contractual sick pay, if it is nonetheless routinely paid to employees in practice because the employer and employees believe there is an entitlement to it, then it may in fact be a contractual payment. In such an instance it may not be possible to rely on a clause like this.

Clause 11 (Confidential information)
The definition of what constitutes confidential information is most important here. There is an implied duty on an employee not to reveal confidential information and / or trade secrets while they are employed.

In the absence of an express term, after the termination of employment the employee is only obliged to keep trade secrets confidential. However, this clause is drafted so that the definition of confidential information includes trade secrets, and under clause 11.2 the employee is under an obligation not to disclose any confidential information during their appointment or at any point after its termination.

This obligation does not apply to the circumstances specified in (a), (b) and (c).

The definition of confidential information must be carefully considered. The nature of the employer’s business has to be considered as well as the classes of information which are to be deemed confidential, bearing in mind that information publicly available from another source will render the information non-confidential.

It will also be important that the employer treats that information as confidential in practice, i.e. puts restrictions on who can access it and implements and polices such restrictions.

Clause 12 (Payment in lieu of notice)
Clause 12.1 confirms that the employer reserves the right to terminate the employee’s contract at any time with immediate effect. Within 28 days of terminating the employee’s contract, the employer must make a payment (or the first instalment of a payment in lieu) to the employee in lieu of notice. Payment in lieu will not include those elements outlined in sub-clauses 12.1 (a) – (c).

Clause 12.2 allows the employer to make the payment in lieu in instalments rather than in one lump sum. The employee has a duty to mitigate the payment in lieu monthly instalments by seeking alternative income. The instalment payments will then be reduced by the amount of any such alternative income received by the employee.

Clause 12.3 confirms that where the employer terminates the employee’s contract due to the employee having breached it, it will not be required to make payments in lieu of notice to the employee in such circumstances.

Clause 13 (Termination without notice)
Clause 13.1 sets out the circumstances in which the company will be entitled to terminate the employee’s contract with immediate effect without notice (and with no liability to make any further payment to the employee).

Clause 13.2 confirms that the company can exercise its right under clause 13.1 if any other event occurs (that is not specified) which gives the company the legal right to terminate the employee’s contract.

Clause 14 (Obligations on termination)
This clause deals with return of company property upon termination of the employee’s contract.

The employer should check that crucial company property is identified in this clause.

The employee is required under clause 14.1 (c) to sign a statement declaring that they have fully complied with their obligations under this clause and to provide reasonable evidence of compliance.

If the employer is particularly concerned about confidential information, clauses can be included here that impose an obligation on the employee to carry out a proper search of his / her home / any other premises at which he / she may have kept property of the employer. Additionally / alternatively, a clause including an agreement to a representative of the employer inspecting any relevant electrical or digital storage device to satisfy itself that the employee has complied could be added.

Clause 15 (Disciplinary and grievance procedures)
Inclusion of this clause and its provisions is required under the Employment Rights Act 1996.

Clause 15.1 – as this clause states that the company’s disciplinary and grievance procedures are located in another document (i.e. the staff handbook), that document needs to be reasonably accessible to the employee. You will note that the final sentence states that the rules are not contractual: this is to avoid an employee arguing there has been a breach of contract by the employer if the employer does not exactly follow the rules/procedures. Following the relevant non-contractual disciplinary and grievance procedures will nonetheless be important for the employer to resist, for example, unfair dismissal or discrimination claims.

Ensure that clause 15.2 is consistent with the company’s disciplinary and grievance procedure. If your business is large enough to have a HR department or somebody who specifically deals with such complaints, their name should be inserted in this clause rather than “Manager”. It is advisable not to have the most senior person within the employer here as if there is an appeal on a grievance decision, the complaint will need to be heard at a higher / further level of management.

Again, ensure that clause 15.3 is consistent with the company’s disciplinary and grievance procedure. Appeals on grievance / disciplinary decisions should be heard by more senior members of staff than those with whom the grievance was initially raised with (though this isn’t legally required).

Clause 15.4 gives the employer the right to suspend the employee while investigating possible serious misconduct by the employee etc. This clause should be consistent with the company’s disciplinary / grievance policy.

During any period of suspension an employee should be provided with the pay and benefit entitlements to which they would have been entitled if they had not been suspended. The withholding of pay and benefits can make it more likely that the suspension will be viewed as an impermissible disciplinary sanction.

The entitlement to pay under the contract must therefore be considered carefully. In the case of Uttlesford DC v Evans [1996], the employment tribunal’s interpretation of the contractual documentation (as upheld by the Employment Appeals Tribunal) was that when an employee was subject to a disciplinary suspension they were entitled to full pay, i.e. their normal pay as set out in their contract.

The period of suspension should be as short as possible, as unnecessarily leaving an employee suspended for a long period may amount to a constructive dismissal, even where the contract allows for suspension with pay. Some employers deal with this by providing in their disciplinary policy for regular reviews of the suspension, for example every two weeks, to consider whether the suspension remains justified with regards to the investigation into the disciplinary matter.

Clause 15.5 sets out the employee’s rights and responsibilities during the period of suspension.

Clause 16 (Pensions)
This clause confirms that the company will comply with its legal obligations (as to pensions) under the Pensions Act 2008.

Clause 17 (Data protection and monitoring)
Clause 17.1 puts the employee on notice of the fact that the employer will process personal data and sensitive personal data concerning the employee in its manual and computerised / automated filing systems internally (and externally so far as this is reasonably necessary).

Clause 17.2 shows the employee confirming that they consent to their personal data and sensitive personal data being transferred to and process by the individuals / entities listed in sub-clauses 17.2 (a) – (d).

Clause 17.3 – an employer is likely to want to carry out staff monitoring to some degree, and this is likely to involve the processing of personal data and sensitive personal data. This clause alerts the employee to this possibility and refers to relevant policies (contained within the staff handbook) which will set out in detail the type of personal data involved, the purposes of the processing and the grounds for it.

The relevant policy (or policies) set out in the company’s staff handbook (or wherever found) will need to identify what personal information the employer will process in connection with the monitoring, how it will be used and for what purposes.

Clause 18 (Restrictive covenants)
Clause 18.1 prohibits the employee from conducting any restricted business (as defined) with a restricted client (as defined). It also prohibits any attempt to conduct restricted business with a restricted client. Note that this clause is limited in that it only applies to restricted clients who the employee had “material dealings” with in the course of their duties during the relevant period (as defined).

Clause 18.2 has the same function as clause 18.1 but clause 18.2 relates to prospective clients (as defined).

Clause 18.3 applies during the employee’s appointment and one year after its termination. It provides that the employee cannot induce (or seek to induce) any other employee who was employed by the company at the date of the employee’s termination to leave the employment of the company. Again, this clause only applies to employees that the employee had material contact / dealings with.

Clause 18.4 applies for the period of twelve months after the termination of the employment contract. It provides that the employee cannot be employed by a restricted client or a prospective client with whom they had material dealings in the course of their duties during the relevant period.

Clause 18.5 applies during the employee’s appointment and one year after its termination. The clause prevents the employee from being employed by, engaged in or otherwise conducting a restricted business that is in direct or indirect competition with the company.

Clause 18.6 prevents the employee from indicating any past association with the company (to the company’s detriment).

Clauses 19 – 24 (Boilerplate clauses)
Clauses 19-24 of the employment contract are called “boilerplate” clauses. These kinds of provisions are repeated in all kinds of contracts and are responsible for regulating the operation of the contract.

Boilerplate clauses do not usually contain the commercial terms that vary from one transaction to another.

Boilerplate clauses are often standard, and most are not typically heavily negotiated. They are nevertheless important as many contractual disputes depend on the drafting of boilerplate clauses such as entire agreement clauses.

All of the boilerplate clauses contained within this template use standard wording and are drafted as they would be for most commercial contracts.

Note on clause 22 (Counterparts) – This clause provides that the parties to the employment contract may execute (i.e. sign) separate copies of it, rather than all parties having to sign the same copy of the agreement. Using a counterparts clause is advisable for reasons of certainty, and to prevent any argument that the agreement is not binding because it has not been properly executed.