Employment Contract - Indefinite Term - Senior Employee
An employment contract is an agreement between an employer and employee that sets out the terms that apply to the employment, including their rights, their duties, their responsibilities and potential liabilities. Employment contracts are also sometimes referred to as employment agreements, terms and conditions of employment, or particulars of employment. You should use this employment contract for a senior employee (full time or part time) who is employed on a permanent (i.e. indefinite rather than fixed term) basis. It can also be used for individuals who are statutory directors of the company.
When should you use an Employment Contract?
In the UK, it is a legal requirement that employees are given a written document summarising the main terms of their employment. This is known as the “written statement of particulars of employment” (or sometimes the “section 1 statement”, as it is required under section 1 of the Employment Rights Act 1996). There is some key information that must be included in a written statement of particulars of employment, for example information relating to salary, benefits, place of work, hours of work, leave entitlements, training opportunities, probationary period and notice period, among others. The written statement of particulars of employment must be given to the employee by no later than their first day of work.
Usually, an employer will want to include additional terms beyond what the law says must be in the written statement of particulars of employment, which is why an employment contract is normally used. This template employment contract incorporates (and goes beyond) what is required to be included in the written statement, and it provides a number of additional protections for the employer.
As explained above, you should use this employment contract for a senior employee (full time or part time) who is employed on a permanent (i.e. indefinite rather than fixed term) basis. It can also be used for individuals who are statutory directors of the company. A senior employee is someone in a senior management position (for example, the CEO, CFO, CTO etc.), who has access to significant confidential information about the company and who has significant influence over staff, clients and customers. If the individual is also a statutory director of the company, additional clauses will be added to cover their additional duties as a director. This contract can also be suitable for employees in middle management if they have significant line management responsibilities. For more junior employees, or employees without significant line management responsibilities, you should use the Employment Contract - Indefinite - Junior / Mid-Level Employee. This contract is not suitable for a statutory director of a listed or AIM company.
Why is an Employment Contract important and why should you use an Employment Contract?
Having a written employment contract is important because:
- The employer has complied with their legal obligation to provide a written statement of particulars of employment.
- There is no uncertainty or dispute about what terms have been agreed. Without a written employment contract in place, it is far more likely that there will be a dispute between the employer and employee either during the employment or after the employment ends about what the employer and employer agreed i.e. what terms and conditions applied, particularly where verbal discussions have taken place over a period of time. Just because there is no written employment contract doesn’t mean there is no employment contract - employment law means that a contract still exists, it is just not written down. Having a written agreement that clearly explains the parties’ rights, obligations and responsibilities reduces confusion, avoids ambiguity or uncertainty and gives everyone clarity and peace of mind.
- The employer is adequately protected. For example, the contract contains obligations on the employee to keep information that they obtain during their employment confidential (which go beyond the common law duties on an employee), and it enables the employer to terminate the employment by making a payment in lieu of notice rather than having the employee working their notice period.
- It encourages good relationships between the employer and employee. It puts a new employee at ease and gives them confidence in their employer. This is especially important in early-stage startups, where there may already be some uncertainty and where the structures and processes seen in larger companies may not be present.
The employer and employee should sign the employment contract before the employment begins. If the employee does not receive the written employment contract on or before their first day of employment, they could be awarded up to 2 weeks pay by an Employment Tribunal.
What are the common pitfalls of an Employment Contract?
- Not having a written employment contract
Whilst there is no legal requirement for an employee to have a written contract of employment, as explained above, employees must be given a written statement of particulars of employment on or before their first day of employment that sets out certain key information about their employment. Having a written employment contract in place avoids uncertainty and disputes, and protects the employer.
- Using the wrong contract
This contract is suitable for a senior employee (full time or part time) who is employed on a permanent (i.e. indefinite rather than fixed term) basis. It can also be used for individuals who are statutory directors of the company. It contains a number of additional protections for the company, including post-termination restrictive covenants. For a more simple agreement, consider using the Employment Contract - Simple, which is short and simple and suitable for junior member of staff, or the Employment Contract - PocketLaw Standard, if you want a market standard employment contract for a permanent, full-time or part-time, junior or mid-level employee.
- Using an out of date contract
Employment law in the UK changes frequently. For example, the law on employment contracts changed significantly in 2020, and contracts must now contain information about the probationary period, types of paid leave other than sickness and holiday, benefits and training. Using a PocketLaw template ensures that an employer remains legally compliant when changes to the law happen.
- Not updating the contract during the employment
When there is a change in terms and conditions of employment (including, for example, when an employee is promoted) it may be necessary to update the employment contract and ensure that both parties sign the updated version. It is good practice to review and update existing employees’ contracts on an annual basis, to ensure that they remain fit for purpose and legally compliant.
- Losing the signed copy
Without a signed copy of the employment contract, there is no evidence of what the agreed terms and conditions of the employment are. Signed contracts can quickly and easily be saved on the PocketLaw platform so that they are securely stored.
- Not having the other documents you need
This template refers to, but does not include, a disciplinary procedure and a grievance procedure. You should create these as separate documents using PocketLaw and make them available to the employee. You should also provide the employee with a privacy notice. Again this can be created using PocketLaw.
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