6.

Employment/Service Agreement

Overview

Description of Agreement/Document
The employment contract, service agreement or statement of terms of employ-
ment governs the relationship of the employer and employee. The terms of
agreement can be set out in a memorandum, letter or agreement. The
agreement sets out the statutory particulars required under employment
legislation in addition to specific agreed terms in relation to the employ-
ee’s employment. At the basic level the employment terms or contract details
the employee’s position, job description, pension entitlement, employment
commencement date, probationary period, warranties, immigration status,
place of work, hours of work, suspension, confidential obligations, pay,
employment benefits, provisions in respect of incapacity and sick pay, disci-
plinary and grievance procedures, arrangements in respect of the employers
company’s property, holiday and other entitlements as well as mutual termi-
nation rights.

Practical Guidance/Issues List

The employment terms can easily be set out in a less formal way, eg they can
be detailed in a letter.
Each type of employee may warrant a different type of employment contract.
Employers find it useful to have a standard form statement of terms of
employment contract prepared in respect of each level of employee. In
addition, it may be useful to set out an employment manual or handbook with
the comprehensive provisions.
Enforceability of certain restrictions will still need to be considered having
regard to reasonableness.
The parties should aim for an agreement that provides adequate protection for
both the employer and employee.
The employer should ensure it provides a set of employment terms for the
employee and endeavour to ensure the contract is signed if provided.
As a contract for personal service, the employment contract will not be
assignable without consent.
It is very important that the drafting of the employment terms is clear to limit
the potential dispute between the parties as to interpretation of its terms or
operation of certain arrangements and entitlements.

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Employment/Service Agreement

The employee should ensure that the employment contract that follows an
offer letter which the employee accepted, correctly sets out the accepted terms.
Clearly, the employee may wish to ensure in drafting the offer letter that it is
subject to the employment contract which should prevail in the event of any
conflict with the offer letter.
The employer will wish to ensure that the status of documents is clear where
the employment contract refers to or incorporates any other documents
including rules, policies, handbooks, plans, offer of shares, option plan or
scheme.
The employee and employer may wish to expressly take the issue of any
restrictions and restrictive covenants arising from the employee’s previous
employment.
Probationary periods are common for junior employees and the length of such
period may depend on the nature of employment. The employer may wish to
reserve the right to extend the applicable probationary period.

Law/Compliance Requirement
The Employment Rights Act 1996 requires certain particulars to be set out for
the employee. The employer also needs to comply with its requirements in
terms of timing and other matters.
Company law and the provisions of the Companies Act 2006 may also impose
certain requirements in relation to directors and directors’ service agreements
including in relation to approval of certain fixed term agreements. The relevant
Finance Act, Equality Act 2010 and the Income and Corporation Taxes Act
1988 will also apply. The employer company will in the normal way be liable
to deduct and make payments in respect of income tax.
Basic principles of contract law apply to employment contracts between an
employer and an employee. However, the employment contract is a contract
for personal service.
Under the Equality Act 2010, it is unlawful for an employer to discriminate.
Most of the Equality Act 2010 came into force on 1 October 2010 and April
2011 with an obligation on employers to ensure that they comply with the
changes to legislation. The Equality Act aims to provide a simpler, more
consistent and more effective legal framework for preventing discrimination.
In effect, all existing discrimination legislation has been replaced by the
Equality Act 2010. The main principles remain the same but there are
important changes to a number of key areas.

Some Key Definitions

‘Board’ means the board of directors of the Company from time to time.
‘Customer’ means any person, firm or company who is contracted or in the
process of contracting with the Company or any Group Company at any time
during [specify period] for the supply of any Restricted [Matters/Products]
[Services].

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 Overview

‘Restricted Area’ means the United Kingdom of Great Britain and Northern
Ireland and any country in which the Company carries on business or is able
to demonstrate that it has substantive and developed plans to commence doing
business.
‘Restricted Matters’ means all and any services or goods of a kind which are
provided, manufactured or supplied by the Company or any Group Company
in the ordinary course of the Company’s business from time to time.
‘Technical Information’ means in relation to the Company’s products and
services, all and any trade secrets, secret formulae, processes, inventions,
designs, know-how discoveries, technical specifications and other technical
information.
‘Term’ means the period of the appointment starting on and from the Com-
mencement Date and continuing in full force and effect until the Termination.

Specific Provisions

Hours
You are entitled to terminate your agreement with the Company that the
working hours limit under the Working Time Regulations 1998 (‘the
Regulations’) does not apply to you by giving not less than three months’
written notice to the Company. The Company will comply with the Regula-
tions.
Following the successful completion of your Probationary Period your em-
ployment will continue until it is terminated by either you or the Company
giving notice to the other in accordance with the notice provisions set out in
paragraph [ . . . ] below.

Holidays
On termination of your employment for any reason any outstanding holiday
must be taken during the notice period and no further holiday entitlement shall
accrue during the notice period.

Maternity/Paternity
The Company shall comply with its obligations under current legislation. You
may obtain further details from the [Managing Director].

Rights
You also irrevocably and unconditionally, so far as is permitted by law, waive
any and all moral rights in relation to any works you create and agree that the
work can be used in the future, without further reference to you in any
jurisdiction.

Termination
The Company reserves the right, at its absolute discretion, to terminate your
employment by making a payment of basic salary in lieu of notice.

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Employment/Service Agreement

Internet
You shall not at any time place any item, article, message, web page or
document of whatever nature on the internet (or any other media) concerning
the Company or any of our customers, partners, directors, representatives,
employees or suppliers.

Data
The Company maintains a data protection notification under the Data
Protection Act 1998 and the Employee must familiarise himself with the Com-
pany’s Data Protection and Privacy Policy (a copy of which is on the Com-
pany’s website or available from the [Board]).

Third Party Information

You recognise that the Company has received and in the future will receive
from third parties their confidential or proprietary information subject to a
duty on the Company’s part to maintain the confidentiality of such informa-
tion and to use it only for certain limited purposes.

Deductions
The Company reserves the right in its absolute discretion to deduct from your
salary or other benefits payable to you or require payment from you any
money which you directly or indirectly owe to the Company.

Freedom
You represent and warrant to the Company that you are not under any
restriction or obligation which prevents you from freely entering into this
Agreement.

Rules
The disciplinary rules applicable to your employment are set out in the Com-
pany’s disciplinary procedure, as amended from time to time. During any
investigation of a disciplinary offence by you, the Company may suspend you
on full pay. [The disciplinary rules and grievance procedures of the Company
are of a policy nature and do not form part of your contract of employment.]

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Checklist 6.2

Employment/Service
Agreement Checklist
In preparing an employment/service agreement or letter, individuals or busi-
nesses should consider the following non-exhaustive matters.

Actions/Issues: Comments: □
1 Review nature and proposed arrangements □
for employment of employee.
2 Consider and ensure particulars of employ- □
ment or details required by legislation will
be included.
3 Ascertain and indicate: □
3.1 employers name and address; □
3.2 employee’s name and address; □
3.3 job description; □
3.4 employee’s job title; □
3.5 applicable probationary period. □
4 Specify: □
4.1 date employment commenced; □
4.2 any previous employment/period of □
continuous employment, where appli-
cable;
4.3 length and period of employment; □
4.4 specific duties of employee in addition □
to general job description;
4.5 any requirement to work for other □
group or associated companies.
5 Ascertain, consider and indicate in relation □
to term of employment:
5.1 whether fixed term contract; □
5.2 whether for an indefinite period; □
5.3 whether terminable by notice; □
5.4 applicable employer notice period to □
terminate;
5.5 applicable employee notice period; □
5.6 whether employment is permanent; □

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Employment/Service Agreement

Actions/Issues: Comments: □
5.7 relevant contracting out of statutory □
claims in respect of fixed term con-
tract, where applicable;
5.8 flexi-time scheme; □
5.9 shift working arrangements and rota □
system, if applicable;
5.10 clocking in procedures; □
5.11 any continuance following expiry of □
fixed term.
6 Consider and specify: □
6.1 employee’s principal place of work; □
6.2 flexibility required in relation to place □
of work;
6.3 entitlement to relocate the employee; □
6.4 entitlement to any relocation ex- □
penses;
6.5 whether employee required to work □
at different locations;
6.6 extent of any geographical mobility □
provision;
6.7 required employee consent to speci- □
fied overseas relocation;
6.8 any restrictions on ability to relocate □
from present place of work.
7 In relation to employee’s working hours, □
indicate:
7.1 normal working hours; □
7.2 any other working hours, such as □
such time required for proper perfor-
mance of duties;
7.3 full time or part time; □
7.4 time to be devoted to business of em- □
ployer;
7.5 requirement to work overtime. □
8 Payment details and remuneration should be □
set out including:
8.1 basic salary; □
8.2 rate and payment intervals; □
8.3 frequency of payments; □
8.4 dates of periodic review of remunera- □
tion;
8.5 discretionary and/or contractual bo- □
nuses;

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 Employment/Service Agreement Checklist

Actions/Issues: Comments: □
8.6 commission entitlement, method of □
calculation, drawings on account and
terms of payment;
8.7 any other benefits; □
8.8 right to withdraw discretionary ben- □
efits;
8.9 over time payment rates; □
8.10 any directors fees; □
8.11 automatic cost of living increases in □
relevant periods.
9 What additional benefits will the employee □
be entitled to? Ascertain and specify as ap-
propriate:
9.1 pension provision including: □
9.1.1 whether company scheme or □
private pension scheme ap-
plicable;
9.1.2 membership of pension □
scheme;
9.1.3 contribution by employer to □
scheme;
9.2 company car including: □
9.2.1 maximum value of car to be □
provided;
9.2.2 liability for tax and mainte- □
nance;
9.2.3 required care by employee; □
9.2.4 use of own car; □
9.2.5 responsibility for insurance; □
9.2.6 use of vehicle; □
9.2.7 responsibility for running □
costs;
9.2.8 maintenance of driving li- □
cence condition;
9.2.9 compliance with company □
car policy;
9.2.10 position in relation to pri- □
vate use and cost of con-
sumed fuel;
9.2.11 replacement vehicle; □
9.2.12 mileage allowance; □
9.2.13 options to purchase vehicle; □

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Employment/Service Agreement

Actions/Issues: Comments: □
9.2.14 arrangements to return car □
on termination;
9.3 mobile telephones; □
9.4 private medical insurance for em- □
ployee and family;
9.5 permanent health insurance scheme. □
10 Ascertain and set out details of: □
10.1 required travel in respect of employ- □
ment;
10.2 payment of expenses and required □
supporting documentation;
10.3 sick pay arrangements and entitle- □
ments;
10.4 person to whom employee reports; □
10.5 employees duties and responsibilities; □
10.6 holiday entitlement, accrued holidays □
arrangements;
10.7 provisions relating to inventions, □
copyrights and new processes;
10.8 right to make payment in lieu of no- □
tice;
10.9 provisions for incapacity for work as □
a result of injury or sickness.
11 What is the employee’s holiday entitlement? □
Indicate relevant details, including:
11.1 number of days holiday/annual en- □
titlement;
11.2 the employer’s holiday year; □
11.3 when holidays can be taken (any time □
or as agreed with board/manager;
11.4 any unpaid holiday entitlement; □
11.5 whether holidays must be taken in a □
holiday year;
11.6 whether holidays can be carried for- □
ward;
11.7 whether a day’s holiday is equivalent □
to a day’s basic pay;
11.8 any restrictions on consecutive holi- □
day days;
11.9 procedure for accrued holidays; □
11.10 arrangements for overdrawn holidays; □
11.11 entitlement to accrued pay for holi- □
days at end of employment;

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 Employment/Service Agreement Checklist

Actions/Issues: Comments: □
11.12 obligation to retain and take holidays □
over specific or seasonal periods.
12 Consider and provide: □
12.1 confidentiality undertakings restrict- □
ing disclosure of company informa-
tion;
12.2 restriction on acceptance of gifts; □
12.3 right to make deductions from salary; □
12.4 right to vary employment terms; □
12.5 statement as to whether any collective □
agreement applies;
12.6 restrictions on outside working or on □
agreed terms;
12.7 retirement age, having regard to ap- □
plicable legislation;
12.8 employer’s entitlement to make joint □
appointment or subsequent appoint-
ment of an employee to jointly hold
position;
12.9 total or partial restriction during em- □
ployment on involvement with other
businesses;
12.10 whether any other contract will sub- □
sist during the employment term;
12.11 procedure for ensuring employ- □
er’s ownership of all inventions by
employee;
12.12 specific restrictive covenants or under- □
takings;
12.13 right to impose garden leave. □
13 Require compliance with terms contained in □
employment manual or other documents
including:
13.1 employee handbook; □
13.2 data protection policy; □
13.3 health and safety policy; □
13.4 confidentiality rules; □
13.5 employer rules and regulations; □
13.6 disciplinary and grievance policy; □
13.7 equal opportunities policy; □
13.8 car policy; □
13.9 internet and e-mail rules. □

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Employment/Service Agreement

Actions/Issues: Comments: □
14 Illness and sick pay arrangements should be □
considered and specified. Review and pro-
vide (as appropriate) for:
14.1 requirement to notify of absence due □
to illness;
14.2 provision of medical certificates or □
other evidence of incapacity;
14.3 self-certification for short absences; □
14.4 right to require medical examination □
of employee;
14.5 employee’s entitlement to proportion □
of salary for specified period;
14.6 employer’s right to terminate after □
certain continuous or total period of
absence in each holiday year;
14.7 entitlement to statutory sick pay only; □
14.8 qualifying days for statutory sick pay. □
15 For disciplinary and grievance procedures, □
detail:
15.1 relevant grievance procedure; □
15.2 person or body to whom grievances □
should be addressed;
15.3 any adopted grievance codes; □
15.4 disciplinary procedures; □
15.5 list of non-exhaustive of disciplinary □
offences;
15.6 disciplinary appeals procedures. □
16 Termination of employment provisions □
should be specified including termination:
16.1 by service of written notice; □
16.2 for breach of contract; □
16.3 automatically on retirement age (sub- □
ject to legal requirement);
16.4 by either party on specified grounds; □
16.5 by employer on incapacity; □
16.6 for misconduct; □
16.7 if prohibited from being a director; □
16.8 by resignation from office; □
16.9 following suspension; □
16.10 for bringing employer into serious □
disrepute;

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 Employment/Service Agreement Checklist

Actions/Issues: Comments: □
16.11 upon employee being convicted of a □
criminal offence;
16.12 for employee’s acts of dishonesty; □
16.13 following employee’s bankruptcy; □
16.14 on change of control or reorganisa- □
tion;
16.15 on any other grounds. □
17 Ascertain, consider applicable post- □
termination obligations for required period
and specify:
17.1 restrictions on non-solicitation of □
staff;
17.2 restrictions against dealing with sup- □
pliers and customers of the business;
17.3 non-competing obligations or involve- □
ment in similar business within speci-
fied location;
17.4 return of employer’s property, docu- □
ments, materials and equipment;
17.5 exclusion, if applicable, of redun- □
dancy pay for relevant fixed term
contracts;
17.6 resignation as director or other speci- □
fied office.
18 Review and indicate whether: □
18.1 all excludable rights have been ex- □
cluded;
18.2 agreement amounts to the entire □
agreement between the employer and
employee;
18.3 reasonableness of restrictions; □
18.4 inclusion of required statutory par- □
ticulars and all requirements of em-
ployment statute;
18.5 there are any residence requirements; □
18.6 notices will be required to be given in □
a particular manner;
18.7 English law and jurisdiction apply. □

See PRECEDENT 6.2.

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