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Business legal MOT – Chapter 3 – Employees and Director Services Agreements

Images by Gareth Jones

If you are a business owner who is able to work from home during the present crisis, perhaps with fewer distractions, this might be an ideal time to reflect on your business and how it could be improved to emerge from the crisis in a stronger state.

In a series of short blogs, Morecrofts partner Donal Bannon will touch upon the various aspects of any business that may require attention in order to reduce risk and strengthen a business going forward.

Chapter 3 – Employees and Director Services Agreements

The third blog in the series looks at employees and Directors who are employees of the company and the issues that business owners should be aware of.

Contracts of employment

It is a legal requirement that every employee is given a statement of terms of employment by their employer within 2 months of their start date. From an employer’s point of view, furnishing employees with a contract of employment will not only satisfy a statutory obligation, but also be an opportunity to ensure that the employer’s confidential information is protected, to prevent employees taking away the employer’s business when they leave and to clearly set out an employees’ contractual duties.

There are a number of other important clauses which should be considered for inclusion in a contract of employment which may be overlooked by employers when drafting contracts themselves.

These include policies and procedures, flexible working and working time regulations, maternity/paternity leave. Employees have the right not to be discriminated against on grounds of sex, race, disability, sexual orientation, age, religion or belief, or gender reassignment.

Such contracts offer vital protection to any business as they set out terms relating to salary, bonuses, obligations, terms of dismissal, notice periods and perhaps most importantly from any employer’s perspective, Restrictive covenants and confidentiality clauses.

Restrictive covenants and Confidentiality clauses

Restrictive covenants vary enormously in terms of their breadth and obligations. Basically, they prevent a departing employee from setting up in competition with his former employer either at all or within a defined area and for a defined time period. They may also prevent such employee from soliciting or acting for customers of his former employer or soliciting other employees and suppliers from leaving or supplying the business.

A word of warning however is that the more onerous the requirements are the greater the risk they might be held by a court to be unenforceable as a restraint on trade. The covenants should only be as severe as the employer can reasonably justify as are necessary to protect its business.

Confidentiality clauses are also used to require employees to keep all confidential information secret after departure, including details of the employer’s customers, methods of working, suppliers etc. However information in the public domain is not protected.

Directors

The above points equally apply to those directors who are employees of the business. They should have Director Services Agreements in place of employment contracts.

If you have any questions which arise from reading this blog, please get in touch with Donal at djb@morecrofts.co.uk

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