In light of the increased remuneration and seniority it is common that executive service agreements will contain a significantly greater number of contractual terms than a standard contract of employment. Of particular significance will be the following issues:
One would expect the length of notice to be reciprocal, not less than one month and in general three months.
It would be common to include an express garden leave provision entitling the employer to send the individual home. Having an express clause is wise as in the absence of such a clause arguments can arise as to whether or not an employee has a right to remain at work, especially if their remuneration is linked to their presence at work (such as bonus or sales commission).
Payments in Lieu of Notice
Commonly employers have an express clause under which the employer reserves the right to make a payment in lieu. This will usually be basic salary only and not include benefits or bonus. The advantage of an express clause is that the payment brings the contract to an end immediately, without a breach. The disadvantage is that any termination payment (which might otherwise be payable tax free up to £30,000) is likely to be regarded by HMRC as a payment under this clause and therefore taxable.
Commonly an employer will restrict an employee from being able to solicit or deal with clients with whom they have had contact in the 12 months preceding termination. As a rough rule of thumb, a restriction of up to 12 months from the termination date is likely to be valid. Anything more than that runs the risk of it being seen as an unlawful restraint on trade. Blanket non-competition covenants are more difficult to enforce and should be of a shorter period and expressly linked to the employee’s access to sensitive or confidential information (see Restrictive Covenants).
Status and Title
Commonly the contract will give a generic title to a post, such as “trader” or “manager”. Employees should seek to ensure that the description is specific rather than generic. They should also ensure that where clauses provide that the employer can move them to other duties, that those are only duties that are “consistent with their status and their skills”. Otherwise the situation can be open to abuse. Reporting lines might also be identified in the contract, but again may be subject to change.
Employers will often insert a mobility clause which may be necessary. A mobility clause can have a disproportionate effect on women (commonly still earning the secondary income) and therefore may have a disproportionate effect and therefore be unlawful unless objectively justifiable. The ambit of a mobility clause should be restricted to what is necessary.
Commonly this will fall into two parts: basic salary, payable monthly and subject to annual review but not necessarily an automatic increase and bonus. Careful consideration needs to be given to whether or not a bonus is contractual or discretionary and the ambit and effect of that bonus (see Bonuses and Deferred Remuneration).
It is important to identify the law of the contract. Even if the contract is expressly covered by English law, if the individual is generally working outside of the UK it is unlikely that they will be covered by the statutory protections – unfair dismissal and non-discrimination, harassment etc – which have a limited territorial scope. (see Jurisdiction).
Posted on 10/08/2016 in Legal UpdatesBack to Knowledge