While there is no legal obligation for employers to provide employees with written employment contracts, it is standard practice to do so. Employers are legally obliged to provide employees with a written statement (called a section 1 statement) that sets out specific information with regards to the terms of their employment, and most employers choose to include these terms in an employment contract which sets out the additional rights and obligations of each party. It is also important that employment contracts protect the employer's commercial interests. Restrictive covenants and post-termination restrictions are often used to achieve this end. However, employment contracts are not one-size-fits-all contracts, and employers should know which type of contract to use for each situation.
For example, the employment contracts of a junior employee and a senior employee may look similar at first glance, but certain clauses which are intended to protect the employer's business are usually necessary in senior employment contracts and only optional (and, depending on the circumstances, sometimes unenforceable) in junior employment contracts.
This article explains why, ideally, no two employees' contracts should be identical, and sets out two of the key differences between junior and senior employment contracts.
All Employment Contracts Are Not Created Equal
Senior employees tend to have a higher level of exposure to the inner workings of the business than do junior employees. Very senior employees will inevitably have access to commercially sensitive information like the business's sales data and information relating to client accounts. Senior employees thus expose their companies to greater risk following the termination of their employment, because they may exploit the confidential information they have had access to throughout the duration of their employment in order to compete with their former employer. They usually also have more industry experience and insight than junior employees. For this reason, senior employment contracts tend to be more formal and detailed than junior employment contracts, and also contain more onerous responsibilities, obligations and post-termination restrictive covenants.
In a reflection of the senior role they occupy, company directors sign yet more formal and detailed employment contracts called service agreements. These contracts contain clauses that would not be appropriate for insertion into junior and sometimes senior (non-director) employees' contracts. For example, directors owe their companies fiduciary duties - this means that they must put the interests of the company that they serve before their own. As such, their service agreements contain particularly onerous clauses.
Clauses that are reasonable and desirable in the employment contract of a senior employee may be too onerous, unreasonable or unnecessary in a junior employment contract. Junior employment contracts are often in short form (sometimes in letter form) and are easier to digest.
Employers may need to add certain provisions into their employment contracts that reflect the seniority (and/or level of exposure to sensitive commercial information) of the employee. However, it is important to bear in mind that each situation and each employee should be assessed on an individual basis. For example, while junior employment contracts do not typically include particularly onerous restrictive covenants, such provisions may be reasonably added to the employment contract of a junior employee who will be in frequent contact with the employer's clients.
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Key Difference 1: Restrictive Covenants (and their enforceability)
What is reasonable to include in an employment contract may depend not on the seniority of the employee, but on the employee's position within the business. Usually, senior employees are key points of contract for clients and for the company's business contacts. Restrictive covenants are therefore standard provisions in senior employees' employment contracts.
Restrictive covenants play a key role in protecting the company's commercial interests following the termination of an employee's employment. In an employment law context, restrictive covenants in employment contracts serve to preclude the employee from pursuing a certain course of action (for a limited period of time).
This is often desirable where former employees are able to exploit their knowledge of the business's sensitive commercial information and their own relationships with the business's clients in order to compete with the former employer's business or to pass this information on to their new employer. Restrictive covenants seek to prevent this from happening.
These covenants should be drafted with care. If a dispute arises, the courts will assess the covenants and may not enforce them if they are considered unreasonable. Among other factors, the courts may consider the seniority of the employee. It is generally easier to enforce onerous restrictive covenants where the employee is senior and has frequent contact with the employer's clients and business contacts. Restrictive covenants are also easier to enforce where the employee concerned has obtained legal advice concerning the effects of the covenants prior to signing the employment contract. Junior employees do not usually obtain legal advice regarding their employment contracts, which are generally easier to understand and which contain clauses that are not particularly burdensome.
However, this does not mean that it is necessarily unreasonable to insert restrictive covenants into the employment contracts of junior employees who are also in frequent contact with clients. The clauses should be tailored to the level of exposure of the individual employee to ensure that the employer is protected.
Key Difference 2: Confidential Information
During the terms of the employee's employment there is, at a minimum, an implied duty of fidelity and good faith owed to the employer. Among other things, this requires the employee to respect the confidentiality of the employer's commercial and business information, and not to disclose this to third parties or to the general public.
Where an employee is specifically told that certain information is confidential and is not to be disclosed, this will suffice to ensure that the information is protected without the need for a covenant.
However, this duty is implied only, and only the employer's trade secrets will be protected by this implied duty after the employment is terminated. Employers should consider inserting confidentiality clauses into employment contracts that expressly protect confidential information during and after the term of the employment.
An express duty of confidentiality should be inserted into employment contracts to protect all the information that the employer would not like to be disclosed to third parties and to the public. As with restrictive covenants precluding former employees from competing with the business of their former employer, clauses that seek to prevent former employees from disclosing their former employer's confidential information may sometimes vary according to the employee's seniority.
It is common to see more detailed and specific confidential information clauses in the employment contracts of senior employees. However, it remains important to tailor employment clauses based on the exposure the employee will have to sensitive business information.
The Bottom Line
Employers must appreciate that employment contracts should not be standardised. Employers should know when it is appropriate to insert or omit certain clauses and should be able to understand the effect of specific clauses on their ability to protect their business.