The life cycle of an employee through their time at your company can be broken into three distinct stages: stage 1 – their recruitment and the creation of their contract of employment; stage 2 – either their promotion and progression in your company, the rapid expansion of your company itself, or hopefully both of these at the same time; and stage 3 – the parting of the ways – termination of that contract either by you or the employee. At Steeles, we always hope to advise employers on ways they can reduce potential risks to their business in advance of these three stages, but all two often find employers coming to us once the next stage is already upon them, and those risks have become all too painful realities..
The importance of properly drafting contracts of employment for new senior staff cannot be stressed enough. Employers can often be tempted to use standard term contracts when recruiting senior employees but putting the best possible groundwork in early on can avoid issues occurring in the future.
There are of course terms which, by law, employers are obliged to include in an employee’s contract of employment. However, we often find that employers miss the opportunity to include additional clauses within contracts of employment which not only suit a senior employee and their employer’s needs better, but provide far more protection for the company. Consideration at these early stages of the future pitfalls – confidential information and trade secrets that your company has strived to develop; bonus schemes that make payments compulsory whether the company believes it fiscally sensible to pay bonuses or not; and restrictions on employee’s future competitions – all so often fail to be properly thought through.
For example, Payment in Lieu of Notice (PILON) clauses are not mandatory but in the case of senior employees, it can be a crucial part of their contract further down the line if you need to remove them from the company in a hurry. In the absence of a PILON clause, your company would be in breach of contract if it terminated the employee’s employment and paid the employee in lieu. This has important consequences – the company would arguably not be able to rely on any of the terms of the contract after termination, including restrictive covenants. In contrast, improperly executed PILON clauses can lead to employees successfully claiming continued employment following case law developments in recent years.
An employee’s contract should always suit the needs of the business and this is particularly important for employers during rapid business expansion. In this situation it is not uncommon for an employer to require an employee to enter into a new contract of employment following their promotion to a more senior position or to more accurately reflect the changing needs of the company. Any such contract will generally include beneficial changes to terms (for example, an increase in pay), but may also contain new restrictions to reflect the additional requirements of the role within a much larger business. This is especially true where the employee joined the organisation at a junior level.
It is vital for employers to understand how to effectively alter and enforce a contract of employment to reduce risks to the company at all stages of the employee life-cycle. Departing senior employees are likely to have acquired, and be able to take advantage of, confidential information, company strategy, customer and client details or other information about their employer’s business, after the termination of their employment. If they attempt to use the information for the benefit of another employer, or in order to set up their own business it can be seriously damaging for the former employer’s business. At Steeles Law, we believe these risks can be effectively reduced by a proactive approach to HR early on and throughout an employee’s career.
Employment law experts from Steeles Law will be providing further detail and guidance on the senior employee life cycle at the forthcoming HR Forum on 6 September 2016. We will offer practical advice on providing a proactive HR approach to managing senior employees, from recruitment to exit.
