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The Employment Contract Videocast

How to Draft an Employment Contract-Express Terms That Should Be Included in a Contract of Employment

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The employment contract in Irish law is made up of implied terms and express terms. There is nothing you can do about the implied terms.

That’s why great care should be taken about the express terms in the contract, and why corners should not be cut when you as an employer are putting contracts in place.

You don’t want to be staring at the small print later on when facing a claim for breach of contract or unfair dismissal and saying “did I really say that?”.

Implied terms fall into 4 categories:

1. Those implied by statute

2. Terms implied by custom and practice

3. Terms implied by law

4. Terms implied by collective agreements in unionized employment.

There is nothing the employer can do about these implied terms. However, the express terms-agreed between employer and employee-are a matter for negotiation and agreement between the parties.

What express terms should be included in a contract of employment?

1. The Parties

Who the employer is is a vital term and it may not be entirely clear unless set out in the contract.

1.1 Date of Commencement

The date of commencement will be very important to establish various statutory entitlements of the employee eg the protection of unfair dismissals legislation, redundancy entitlements etc.

2. Job Function/Description

The temptation for the employer here is to have as widely drafted a job description as possible.

However, this can cause problems if the need for redundancy arises as the employee may claim that their job description requires them to carry out duties different from those which the employer wishes to make redundant.

3. Hours of Work

The hours of work term of the contract should deal with

• Overtime (paid or not) (There is no statutory obligation on employers to pay  overtime. However, most employers pay higher rates of pay for work done outside normal working hours, for example at a rate of time and a half. This should be stated in your contract of employment).

• Shifts

• Breaks.

The most important piece of legislation in this area is the Organisation of Working Time Act, 1997.

It is advisable for the employer to also provide for the right to lay off or place employees on short time (there is no general right in law to do this).

The Protection of Young Persons (Employment) Act, 1977, the Conditions of Employment Acts 1936-44, and the Shops (Hours of Trading) Act, 1938 should also be considered.

4. Place of Work

It is advisable for employers to have a geographical mobility clause in the contract as an express term. Here is an example:

The company reserves the right when determined by requirements of operational efficiency to transfer employees to alternative work and it is a condition of employment that they are willing to do so when required.

However, the employer must act reasonably and responsibly in this regard.

Interestingly, a reduction in pay as a result of a contractually allowed transfer is not a breach of an implied term that there would be no unilateral reduction in pay.

5. Exclusive Service

Decisions in Irish employment law have held that employees have the right to work for another employer in their spare time. However, this work could not conflict with their duties of confidentiality and loyalty to their employer.

6. Probation

Any probationary clause should not exceed 12 months. It should also provide for an extension of the initial period (say 6 months) and should have a notice period less than outside the probation period.

Reference should also be made to the disciplinary procedures of the company not applying during the probation period. However, if this is the case, then a probationary policy should be drafted by the company setting out what procedure will apply during the probationary period.

Even though an employee is on probation, s/he is still entitled to fair procedures and natural justice when it comes to termination.

The wording of the probationary period is also important. The District Court in Ireland has held that the following clause gave rise to an entitlement to the employee to be paid for the remaining 5 months of a probationary period when he was dismissed after one month:

The first six months of this contract shall be a probationary period.

This one clause is a good example of why you should have a legal professional draft any contract of employment you require.

At common law, it appears that the employer has an implied right to terminate during the probationary period on the giving of specified or reasonable notice. This is why provision should be made in the contract for a shorter notice period during the probationary period.

7. Term or Duration of Contract

The term or duration of the contract is only applicable for a fixed term or specified purpose contract.

8. Salary/Pay

This, clearly, is a very important clause in any contract of employment. Setting out basic salary is straightforward; bonuses and commissions can cause problems if not set out clearly.

The employer will seek to have the payment of a bonus at his/her discretion; employees will be keen to see how they can become entitled to a bonus.

Termination during a bonus period should also be clarified and agreed. (Read the law surrounding the payment of wages also)

9. Holidays/Annual Leave

Minimum holiday entitlements are provided for in the Organisation of Working Time Act, 1997. This act vests in the employer the right to determine when holidays are taken.

However, this clause should also make provision for when holidays can be taken as well as recognising that any extra holidays would be over and above the statutory entitlement to holidays and public holidays.

10. Company Car

The entitlement to a company car should be set out in this clause with clarity as to the make, model, value, etc. allowable.

11. Sick Pay

The sick pay clause will set out whether the employer operates a sick pay scheme or not. There is no general entitlement to sick pay in Ireland.

However, this entitlement may be implied from custom and practice in the workplace.

The employers may operate a sick pay scheme or an income continuance plan or health care insurance entitlements.

This needs to be clear from the outset in the employment contract as sick pay is an area which causes great difficulty for both employer and employee in the absence of clarity.

12. Pension

If a pension is part of the remuneration package, reference should be made to it in the contract and if there is a company pension scheme it is important that an employee is not excluded in such a way as to leave the employer open to a successful claim for direct/indirect discrimination.

13. Retirement Age

There is no statutory retirement age in Ireland (save for in the public service and a small number of industries). For this reason, a retirement age should be spelled out in the contract, if one is desired.

It is worth noting that just because there is a retirement age specified in the pension scheme does not mean that there is an implied retirement age in the contract of employment.

An interesting case dealing with age, retirement age, and fitness to work is the Donegal County Council v Porter [1993], Irish High Court.

14. Grievance Procedure

The method of processing grievances in the employment should be referenced here.

Employees should be bound to exhaust the internal grievance procedure first before resorting to outside bodies.

The statutory code of practice, Industrial Relations Act, 1990 (Code of Practice on Grievance and Disciplinary Procedures) (Declaration) Order, 2000 (Statutory Instrument 146/2000) contains the principles to be applied by the employer in any grievance and disciplinary procedure.

15. Disciplinary Procedure

Employers should have a disciplinary procedure to ensure fair procedures and natural justice where necessary.

SI 146/2000 sets out the basic principles which any disciplinary procedure should follow. These include:

• What will happen to deal with a complaint/allegation

• How many stages will be followed in each event

• The employer’s right to choose which stage to commence the procedure and the penalty to be imposed

• The right of representation of the employee

• Whether there is a right of appeal to any decision taken to impose a penalty.

16. Restrictive Covenant

This clause deals with the right of employees to compete with their former employer once they have left employment with that employer. There are 2 aspects to any ‘non compete’ clause:

• The common law entitlement of the employer to protect trade secrets and confidential information

• The Competition Act 1991.

Regardless of the express term in any contract of employment dealing with this area, the Courts recognise the common law right of the employer to protect confidential information and trade secrets-even when the employment relationship is terminated.

However, there is no common law restriction on an employee competing with a former employer once she leaves employment. This is why a ‘restrictive covenant’ is a good idea in the contract-to protect, for a reasonable time and over a reasonable geographic area, the employer’s legitimate interest.

This is not a restriction on normal trade or general competition post-employment though; it must be a restriction to protect a specific legitimate interest.

However, if the employer breaks or repudiates the contract, he will generally be unable to rely on any restrictive covenant in this connection.

The Courts will also recognise a common law duty of obligation, fidelity, and loyalty in all contracts of employment. This duty has been held to include an obligation not to compete with the employer while in his employment.

There is no common law restriction on former employees canvassing or soliciting business being done by their former employer.

However Courts will recognise the validity of restrictive covenants in contracts of employment provided

  • the employer has a legitimate interest to protect
  • the conduct/activity sought to be restricted must be reasonable
  • the duration of the restriction must be reasonable
  • the geographical extent of the restriction must be reasonable.

It is worth noting that where an employer repudiates the contract or is involved in a fundamental breach he will normally be unable to rely on restrictive covenants in the contract which crystallized as a result of the employer’s action.

Springboard injunctions

An injunction may be granted to an employer where a departing employee seeks to rely on trade secrets or confidential information belonging to the former employer as a springboard to launching a new business.

Competition Act, 1991

The Competition Act, 1991 does have some impact on employment contracts, even though many think that the Act is inappropriate for governing the  employer/employee relationship. The most important case considered by the competition authority was Apex Fire Protection v Murtagh [1993].

17. Termination of Contract

The notice period for termination of employment is a critical clause. If there is none and the contract is silent in this regard, then ‘reasonable’ notice must be given by the employer.

Litigation over what is “reasonable” can be avoided very easily by providing a specified notice period in the contract and will also avoid a legal action for wrongful dismissal provided the notice period is given.

This will vary from contract to contract depending on a number of factors such as job function, length of service, age of employee, custom and practice, etc. In short, what is ‘reasonable notice’ in each case will depend on the facts of the individual case, bearing in mind the factors outlined above.

It is strongly advisable for the employer to specify a notice period in the contract in order to avoid a claim for wrongful dismissal.

Unless it is stated in the contract, notice does not have to be in writing; but it does have to be clear and unequivocal.

Notice given during times of leave or illness is valid, except for during maternity leave which is protected.

The notice period in the contract cannot be less than that provided for in the Minimum Notice and Terms of Employment Act, 1973 (as amended).However, if an employee is dismissed for misconduct s/he loses his/her entitlement to notice.

The employment does not come to an end until the end of the notice period, even where a person is not required to work the notice period and has been ‘paid off’.

Damages that can be awarded to employees for dismissal are generally limited to recoverable losses to which the employee was contractually entitled, but not punitive damages.

18. Search Clause

A search clause is commonly used in many contracts allowing the employer to search the employee’s locker, baggage, vehicle, etc.

Without this search clause, any search, without consent, could be considered to be an assault.

19. Patents, Inventions, and Copyright

Unless there is agreement to the contrary, any copyright in material which is made by the employee in the course of employment is the property of the employer. The same principle applies to research and development work carried out which leads to an invention.

20. Share Options

A share options clause may be necessary. Provision should be made for the employee moving location or changing job function.

21. Bullying and Harassment

An anti-bullying and harassment policy should be appended to the contract of employment as the employer is obliged by law to prevent bullying and harassment occurring in the workplace.

22. Internet and email

Reference should be made to the company’s policy on internet access, email and internet use. A separate policy in this regard should be provided by the company to the employee.

23. Resignation of Office or Directorships

Resignation from offices held, including directorships, should be provided for in the contract of employment.

24. Proper Law

The law governing the contract should be spelled out and is very important where an employee may be required to work abroad.

25. Other

Other clauses which may be included, depending on the specific requirements of the employer, may include

• Wearing of uniforms, dress code

• Punctuality and attendance

• Responsibility for tools, property, uniforms, clothing, boots, etc

• Requirement to hold a driving licence

• Compassionate leave

• Parental leave (subject to statutory entitlements)

• Work standards

• And more.

Work Practice or Contractual Provision?

The difference between a contractual provision and a work practice is very important. Read about the significance here.

If you are an employer and you don’t have existing contracts of employment for your employees, or you are concerned about the contracts you do have, we provide a professional, cost effective contract review and drafting service.

Are you an employer?

Need a quote for a contract of employment? Contact me.

We can supply you with

  1. a template contract which you will complete yourself for each employee. This would involve things like commencement date, job description/role, rate of pay, and any other specific details for the individual employee and/or
  2. individual contracts for each employee-we get all the necessary details from you for each employee and draft the contracts for you.