Employment

Three key clauses in an employment agreement

Valentina GolubovicValentina Golubovic
Last updated on:
April 24, 2022
Published on:
April 21, 2022

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A comprehensive employment contract should be a priority for business owners to protect their relationships with their employees. Without properly laid out terms, employers risk misunderstandings and disputes, which can be costly and time-consuming for both parties.

This article will outline three clauses employers should include in contracts to reduce disputes.

Restrictive covenants

A restrictive covenant places constraints on the employee if they leave the business. This clause aims to protect the interests of the employer. Such clauses are usually inserted into contracts to prevent staff from competing with their old employer or using confidential information after their employment has ended.

Examples of covenants that restrict an employee post-termination include:

Non-compete – prevents them from joining a competitor for a specific period.

Non-dealing – prevents dealings with past employer’s clients for a particular period.

Non-poaching – prevents hiring former colleagues.

Non-soliciting – prevents soliciting customers and staff from their former employer.

A non-compete clause must state the interests it is trying to protect and the geographical location and time frame of restriction posed on the employee post-termination. Conditions must be justified and widely expressed, excessive and unreasonable terms risk being invalid. The employee’s seniority is also a factor to consider when drafting a non-compete clause.

Currently, there are talks of the government banning non-compete clauses in the future to increase competition and boost innovation. For the time being, businesses can use non-compete clauses, especially in the early stages of their development to protect their interests.

Alternative ways businesses can protect their interest are through intellectual property law or confidentiality clauses.

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Mobility 

This clause outlines the place or places where the employee is expected to carry out their work. A carefully drafted mobility clause could mean that a business can retain its employees in the event of an office closure or relocation.

Employees must comply with a mobility clause provided it is reasonable. Even though there is no clear definition of what constitutes ‘reasonable’, many factors come into play, such as notice, commute, cost, seniority of the employee and other factors. 

A lack of a mobility clause places no obligation on the employee to relocate, resulting in potential disputes. On the other hand, a carefully drafted clause that outlines the needs of the business can provide certainty and is more likely to be considered reasonable. 

Notice period

This clause will specify the notice period to an employee (or by the employee) if either party wishes to terminate the contract. The employer can set the notice period for the employee; however, it must at least be the legal minimum notice period.

Statutory notice periods are:

  • If employed between one month and two years, at least one week’s notice
  • If employed between 2 and 12 years, one week’s notice for each year
  • If employed for 12 years or more, 12 weeks’ notice

Extending the notice period for senior employees in management roles must be mutually agreed on and can benefit both parties. It is often advisable to reduce the notice period in the early stages of employment to relieve any obligation for both parties to continue if the work is unsuitable.

It’s vital to focus on the objectives of the business when constructing an employment contract. Ambiguous and broad clauses can result in legal action wasting time and resources, not to mention the reputation damage, which can also be on the line. 

How to create an employment agreement?

To create your employment agreement, create a Legislate account and select the employment agreement from the list of available contracts. Set the terms of the agreement and invite the employee to e-sign the contract directly from Legislate. Watch a Legislate tutorial of the employment contract creation process.

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