New businesses and their employees

June 19, 2008

Fledgling businesses have 101 things on their minds, but how many of them genuinely devote any time and attention to that most essential of documents - the employment contract? A failure to do so can have expensive, sometimes business-threatening, repercussions.

1. Ensure your employees have a written contract, setting out all relevant terms. These must include basic terms set out in legislation, such as salary, holidays, discipline, hours, sick pay, notice, etc.

2. Protect your IPRs. Less of a problem if your staff are employees, as most rights accrue to the employer, but if your workers are contractors or consultants a specific ownership term must be included or you risk losing expensively-created rights.  This is particularly important for business that rely on intellectual property such as technology and online businesses.

3. Be clear what you intend where holidays (minimum 24 days currently, which can include bank holidays), sick pay (only statutory sick pay need be paid, although many employers will pay more), and notice are concerned.

4. Get the name of the employer right, and write the contract on the correct letterhead.

5. If the business is doing well enough to pay bonuses, make sure they are discretionary and that the contract is clear as to what happens on termination, especially part-way through the bonus year.

6. You will need a well-drafted confidentiality clause, covering all the important areas of company information.

7. Make sure you have a range of protections for your business after the employment has ended: a garden leave clause, allowing you to place someone on garden leave (without it, you cannot);a payment in lieu of notice clause, permitting you to terminate the employment immediately on payment (without it you will be in breach of contract and any restrictive covenants will be unenforceable). 

8. Most importantly, consider including restrictive covenants affecting the employee's post-termination activities. Without them he will with relative ease be able to attack your customers and revenue streams, provided he does not use confidential information. Depending on how specialist an online product or service you have or offer, a non-compete may be justifiable. If not, consider language preventing him soliciting your clients for a competing business, or dealing with those clients. Always include a clause preventing him soliciting your employees - it's bad enough to lose one employee, but then to have him spirit away your other people for want of protection is negligent in the extreme.
9. Ensure the contract is signed before the employee starts work.

10. Check immigration status to ensure you don't commit a criminal offence.

A little TLC at the outset will provide some good protection for your business, particularly against former employees who may want to compete unfairly.


Related pages:

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