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RESTRAINT OF TRADE CLAUSES IN EMPLOYMENT CONTRACTS

Under UK law an employee has a duty of fidelity to his employer while working for them. This duty is implied in the contract of employment. The question often arises as to whether an employer can enforce contractual obligations on the employee after the expiration of the employment contract. In certain situations, the answer is yes. One tool that can be used to achieve this is a restraint of trade clause.

The restraint of trade clause is a contractual term that expressly restricts an employee s freedom to work, once the current employment relationship ceases. Such a clause will only be upheld by the Courts, if it is reasonable as between the parties and where it is consistent with the interests of the public. The pubic interest is that society should not be deprived of the services of a skilled workforce. The question of what is reasonable is considered on a case by case basis. In practice, the clause must go no further than is reasonable for the protection of the employer s business.

Restraint of trade clauses usually contain restrictions on the employee s ability to work in a geographical area, or for a defined length of time. It is not uncommon or illegal for an employer to restrict a former employee from working within a fixed geographical area, or from working with a rival business to the former employer for a period of time after the cessation of the contract of employment. However, the restrictions must not be excessive. What is excessive depends on the nature of the work in question and the structure of the business.

Decided cases in the United Kingdom have upheld restraint of trade clauses that prevent a former employee working with a rival business and from canvassing former clients of the employer for a period of twelve months post contract.

Courts have also declared unreasonable and void restraint clauses that prevent a person from doing business within a 25 mile radius of London.

A clause that purports to cover a worldwide restriction is unlikely to be upheld. The narrower and more specialist the market in question, the more likely the clause is to be upheld.

It is more likely that a Court will uphold a clause as reasonable where it prevents the former employee from soliciting former clients, or from disclosing company secrets rather than stopping the former employee from working at all. Clearly a restraint clause which prevents a former employee from taking up a business which doesn t compete with the former employer is unlawful.

Where a restraint of trade clause is capable of several interpretations, some of which are considered reasonable, some of which are unreasonable, judges can sever the offending parts and enforce the remainder.

Where a former employee breaches a restraint of trade clause, he is guilty of breach of contract. Such a breach gives rise to an action on behalf of the former employer for damages. It is difficult to assess the level of damages, some Courts measure damages at the level of the employee s gain rather than the employer s loss.

A useful way for a former employer to prevent a former employee from breaching the terms of a restraint clause in an employment contract, is to seek an interlocutory injunction restraining the breach. In an application for injunctive relief the Court will have regard to whether there is a serious issue to be tried and will grant the injunction if it is of the view that the balance of convenience lies on the side of the employer. In UK decisions, other factors such as the likelihood of trade secrets being disclosed to third parties have been considered in granting the relief.

However, if the practical effect of enforcing the injunction is to compel the employee to continue working for the employer, the injunction for specific performance of the employment contract will not be granted.

The question of the enforceability of restraint of trade clauses is a fertile ground for litigation, both for employers and employees and can play a significant role in the formation of the contract of employment.

PATERNITY LEAVE AND ENTITLEMENTS

 Under the terms of the Employment Act 2002 in the UK working fathers are entitled to statutory leave from their employment on the birth of their child.

The leave period is either one or two weeks, at the option of the employee. However, the leave cannot be taken on individual days or as two separate weeks.

An employee will be entitled to apply for paternity leave if his wife or partner have a child biologically, or where the couple adopt.

Not all employees are automatically entitled to paternity leave. To qualify, the employee must have been employed by his employer under a contract of employment and have worked for at least 41 weeks by the date the baby is due. A different time period applies in the case of adoption.

Furthermore, the father must be able to prove that he will have some level of responsibility for the upbringing of the child. A final requirement is that the employee gives his employer the correct notice for paternity leave.

The employer is entitled to be informed of the due date, the date on which the employee wishes to commence leave, and whether the employee wishes to take one or two weeks paternity leave. The employee must also declare to his employer that he is entitled to paternity leave and that the purpose for such leave is to support the mother or care for the child.

Under the Act, the employee must give notice of intention to take paternity leave of fifteen weeks before the baby is due, of if this is not practical, as soon as the employee knows he wishes to take leave. Should the employee decide to change his mind about when to take paternity leave, he can do so but should give at least 28 days notice of the changed dates.

Employees are not entitled to commence paternity leave prior to the baby s birth, and the Act requires the leave to be taken and completed within 56 days of the birth.

Fathers who are entitled to paternity leave are usually entitled to receive statutory paternity pay, provided they meet national insurance criteria and follow the requirements as to employer notice as above. This is at the same rate as statutory maternity pay and in 2007 stands at £112.75 per week or 90% of average weekly earnings if this is less. The employee is entitled to receive this pay from the state. Often large employers will have corporate policies to pay male employees on the birth of their children, if this is the case, this will be in addition to the statutory rate.

Following the completion of the paternity leave, the male employee is entitled to return to his same employment as if he hadn t been absent. During the paternity leave all terms and conditions of employment continue, except those relating to wages and salary. The period of leave counts towards a period of continuous employment and for pension calculations.

The right of an employee to take paternity leave and to receive statutory paternity pay is an important positive development in UK employment law.

 

 

CAN THE TERMS OF AN EMPLOYMENT CONTRACT BE VARIED?

Due to the changing nature of employment circumstances, for employment contracts to subsist and have effect, specific terms and conditions may need over time to be altered or varied. It is settled law that an employee has no right to have his work conditions remain unchanged throughout the duration of his employment.

The law in the UK is clear, any variation in the terms of employment agreed between employer and employee requires the express or implied consent of both parties, and requires legal consideration as the agreement between the parties is legally binding.

The clearest way to for parties to express these new terms and conditions, especially is they are far reaching in nature is to simply rescind the existing contract of employment and execute a new one. Employment contracts can be purchased in template form and legal forms can be used to take the burden out of lengthy and tedious drafting.

It is also possible for parties to consent to altered terms and conditions by implication .An employee can simply consent by carrying on working under the new conditions. However, express clarity is more desirable, to avoid a claim for unfair dismissal where there is disagreement.

The employer must not enforce changes to the employment contract unilaterally, without the consent of the employee. To do so amounts to a repudiation of the contract, and the employee would have the legal right either to seek to treat the contract as terminated or to carry on working and to seek damages.

Contracts of employment can be drafted in flexible terms to take account of future changes in the duties to be performed by employees. It is not uncommon for clauses to be inserted into employment contracts, requiring the employee to perform such duties as are from time to time given to him by the Managing Director or his agent.

Where an employer requires to alter the fundamental nature of an employee's employment, this may be regarded by the courts as the creation of a new distinct employment contract, rather than the variation of the old one. If so, the fundamental breach of contract results in its termination.   

It is not legal for an employer to vary the terms of contract, merely by giving the employee notice, written or otherwise. In practice, it is essential for an employer seeking to vary contractual terms to give written notification of his intention to vary the terms of contract, by creating a new employment contract on new terms.

In modern business, some degree flexibility is required by both employer and employee, with regard to their relationship and therefore the employment contract should be sufficiently broad to encompass some change. As can be seen, in practice the law will also allow variation in the terms and conditions of employment.  

CAN LEGAL FORMS AND POLICIES HELP  MAKE YOUR BUSINESS LEGALLY COMPLIANT?

Under UK law, numerous employee rights and entitlements exist which are fundamental to the relationship of employer and employee but do not form a detailed part of the employment contract. Often, the law implies certain rights into the employment contract or in the course of dealings between the parties.

To avoid legal disputes, it is very important for an employer to reduce such rights and procedures into policy documents in writing. This will provide clarity and certainty to employers and employees alike. The following legal forms detailing such procedures can be purchased online, which will help ensure that your business is legally compliant and will save you time and money:

Disciplinary Policy: This legal form details the procedures for disciplining employees in the event of employee wrongdoing or where a breach of company policy occurs. In disciplining employees, including the imposition of sanctions such as oral or written warnings, it is important for the employer to adopt fair procedures. To suspend or dismiss an employee, the employee should be given an opportunity to set forth his side of case. The disciplinary policy will detail the steps to be followed and the stated instances of misbehaviour to which the policy applies.

Grievance Policy: This is a legal form which states the procedural remedies an employee can seek where he is aggrieved by a decision of the company or by the actions of his fellow employee. It deals with grievances which are capable of being resolved internally and will set the framework within which an employee can complain. The legal form will also specify the format of meetings and investigations the company will adopt in deciding the validity of such claims.

Health & Safety Policy: Under UK law, an employer is obliged to detail the procedures to be adopted in the workplace relating to the health and welfare of employees. This legal form details the steps the company will take ensure in so far as is reasonably practicable the safety, health and welfare of employees and others who may be affected while engaged in their work. The legal form outlines inter alia the company policy in the area of handling hazardous materials, fire and first aid procedures and will name the company officers and staff who will implement this policy.

Paternity Policy: This legal form details how a male employee can apply for statutory leave on the birth of his child. The policy contains details on eligibility for leave, how application is to be made and the notice period required by the employer. The legal form will specify the employee s rights during leave and his entitlement to return to work following leave on the same employment terms.

Maternity Policy: This is a very important legal form for employers to have, which can be utilised where leave is claimed. The policy will outline employer/employee rights to notification, ordinary maternity leave, circumstances of additional leave, the right of the employee to be kept informed of company developments and the return of the employee to work. The law relating to maternity entitlement is complex and ever changing, so it is in both the employer s and employee s interest to have a clear legal form which details rights and procedures.

Parental Leave Policy: Parental leave is a statutory entitlement allowing for additional leave which can be invoked by an employee who becomes a parent. This legal form outlines the rights and entitlement to apply for such leave and how the employer must apply due consideration to such requests. It also specifies situations where leave in the manner and form claimed can be refused.

Flexitime Policy: Employers have a legal duty to consider the requests of employees to have flexibility in their working terms and conditions. This legal form details how an employee goes about requesting such flexibility and the circumstances where an employer will decide to agree or decline flexibility in the hours or location worked.

Alcohol Policy: An employer may enforce rules regarding the consumption of alcohol or intoxicants by employees in the workplace or during work time. This legal form outlines the situations where such consumption will amount to a breach of company policy with the consequences of disciplinary sanction.

Smoke Free Policy: Under recent UK law, smoking in the workplace has been outlawed. This legal form will specify the situations and places where smoking is restricted and the steps an employer is requested to take to ensure the workplace is a smoke free environment.

Legal forms and policies will assist an employer in his quest to make his business legally compliant. Legal forms are inexpensive, provide clarity to a wide variety of employment situations and will help avoid unpleasant, costly and damaging employment disputes.

 

WHAT ARE THE PARTICULARS TO BE GIVEN TO THE EMPLOYEE?

Under the Employment Rights Act 1996, employers are duty bound to provide employees with a written statement of the fundamental terms of their contract of employment. Employment contracts can be oral or written in nature, but written particulars must be given even in respect of oral contracts. The aim of the statement is to provide clarity and certainty in the interpreting of core terms of employment.

The statement must be provided to each employee within two months of the commencement of employment.

According to section 1 of the 1996 Act, the following details must be included in the statement:

-         The names of the employer and employee.

-         The date on which the employment began.

-         A short description of the nature of the job.

-         The rate of pay or the scale on which it is to be calculated.

-         The method and frequency of payment.

-         Normal hours of work.

-         The right to receive holidays and holiday pay.

-         Terms providing for sickness and injury.

-         The pension rights of the employee.

-         The length of notice the parties must give to terminate the employment contract.

-         If the employment contract is for a fixed period, the period for which the contract is expected to continue should be stated, and the date of the end of the period must be specified.

-         The place of work.

-         Terms of any collective agreements affecting the employment contract.

-         The rules applicable for disciplinary procedures, or an indication as to where those disciplinary procedures can be found.

 A written statement if the terms of employment is evidence that a contract of employment exists between the employer and employee and what those terms are, but the statement itself is not a written contract.

If an employee is not provided with written particulars, he can submit the matter to an employment tribunal. The tribunal has the power to determine which particulars to add, and can imply those particulars.

The written statement is a measure of protection for employees and aims to bring clarity as to contractual terms and conditions, helping prevent employment disputes, particularly in informal employment types and situations.

 

IMPLIED CONTRACTUAL TERMS

The law will often imply certain contractual terms in addition to those expressly agreed by contracting parties. Terms which give effect to the contract and to the intention of the parties will be implied into such contracts, either by the courts, by specific statute or by custom or usage.

Contractual terms which are imputed into contracts by the UK courts, tend to give efficacy to the particular transaction so as to prevent an obvious injustice which would arise on a rigid interpretation of the express terms agreed. Courts have implied terms into contracts for leases of dwellings that landlords shall take reasonable care to ensure the dwelling is in a reasonable state of repair. While it is settled law that a court has the power to imply terms into agreements, nothing shall interfere with the rights of contracting parties have to expressly exclude such terms, in the body of such agreement.

Terms are often implied by courts into employment contracts, in particular in situations where terms inadequately outline the rights and duties of the employer and employee, for example, it is readily implied that an employee has a duty of loyalty to his employer. Terms will be implied into business dealings between parties where necessary to give business efficacy to the transaction, for example where inadvertent omission of a condition by the parties has arisen.

Contractual terms binding on the parties are often expressed in statute, for example the various consumer rights on sales contracts under the Sale of Goods Act, 1893. In sales of goods by description, it is an implied contractual term by statute that the goods should answer the description and be of merchantable quality. Statute law often codifies aspects of the common law, and confers rights on parties, implied into contract, to repudiate or rescind agreements and to sue for damages in respect of breach of contract. It is not uncommon for sellers to seek to expressly exclude the operation of implied terms by statute, however certain implied terms in particular in respect of consumer rights cannot be excluded or limited.

Contracts can also be subject to terms founded by custom or usage through course of dealings, though not expressed by the parties. A custom can be incorporated into contract only if there is nothing expressly or impliedly in the terms of the contract that prevent its inclusion. Customs can often be a part of a particular trade or business sector, but to have effect they must reinforce and assist the agreed contractual terms.

Implied terms are a very important aspect of contract law and it is essential for business and contractual efficacy that there is some incursion into the expressly agreed contractual terms of the parties.

 

 

THE LAW ON EMPLOYMENT REFERENCES

Under UK law, there is no legal obligation on an employer to provide an employee or former employee with an employment reference, thus an employer can legally decline such a request for a reference. The employee has no right under the employment contract to be granted a reference, even though undoubtedly obtaining a reference is an important aspect in getting a job.

However, if an employer does provide a reference, whether written or oral, it must be accurate. Once an employer provides a reference he can be liable in respect of an erroneous reference due to negligence, and he owes a duty of care to those prospective employers who may rely on the truth of such reference.

In giving an employment reference, the employer must take reasonable care not to give misleading information about the employee, that might be so construed by a prospective employer. He must also take reasonable steps to verify the information on which the reference is based.

An employer in providing a reference concerning an employee or former employee owes a duty of care to the employee regarding the preparation of the reference and can be liable to the employee in damages as a result of negligent misstatements. An employee has a remedy in negligence only if he can establish that an inaccurate reference was due to the employers lack of care. There is no action for negligence if the statement is true. Deliberately false statements in references can result in defamation claims and it is possible for an aggrieved employee who fails to secure employment by reason solely of the falsehood of such statement to sue for resulting economic loss.

UK courts in employment cases have recognised that a balance needs to be struck between the duty of care in the preparation of employment references and the need for open and frank communication on matters relevant to the employment record of the employee. The interpretation of employment references can be a fertile ground for litigation and employers must exercise reasonable care in considering whether to provide an employment reference and its substance and form.
 
    CONTRACTS ILLEGAL ON THE GROUNDS OF PUBLIC POLICY

     

    Certain types of contract which subvert the common good have traditionally been held to be illegal under UK law. Some of these contracts clearly go against the concept of public policy, some offend morality and others are deemed socially inexpedient. Those illegal contracts are classed as follows:

    - Contracts to commit a crime, tort or fraud on a third party: An agreement which has as its object, whether direct or indirect, the commission of a crime or tort is illegal and void. Agreements which have the effect of defrauding or deceiving another also fall into this category.

    - Contracts that are sexually immoral: Contracts which have aspects that are sexually reprehensible are illegal on the grounds of public policy. Agreements relating to the division of the proceeds of prostitution, or the provision of sexual services are illegal. The definition of public policy as it relates to sexual mores, is one that changes over time.

    - Contracts prejudicial to public safety: Contracts entered into which are detrimental to the interests of the UK are prohibited, such as those which benefit an enemy state, or disturb good relations between the UK and other states. Contracts made during war with an alien enemy are illegal. A contract to raise money to support insurrection or rebellion in a foreign friendly state is illegal, in that a contract contemplating the performance of an act against public welfare of that country is a breach of international comity, illegal under UK law.

    - Contracts prejudicial to the administration of justice: Contracts or agreements which in any way affect the administration of justice are illegal and void. Examples of such contracts include agreements to prevent lawful criminal prosecutions, agreements to obtain monies by false pretences and forgery offences.

    - Contracts liable to corrupt public life: An agreement which tends to corrupt the administration of the nation’s affairs is illegal. Agreements which influence or diminish the responsibility of holders of public office are also outlawed.

    - Contracts to defraud the revenue: Contracts which directly or indirectly have the effect of defrauding or interfering with the operation of the revenue, local or national, go against public policy and are illegal.

    The categories of illegal contracts have evolved under common law over time and it may be that further categories of contract will emerge where socially or economically expedient as the concept of public policy develops.

     

    Basic Employment Contract
    Standard Employment Contract
    Executive Employment Contract

     

    Health & Safety Policy

    Grievance Policy

    Disciplinary Policy

    Maternity Policy

    Paternity Policy

    Parental Leave Policy

    Flexible Working Policy

    Alcohol Policy

    Smoke Free Policy

     

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