You have found “the one” the employee that has so much promise, the rapport was built during the recruitment process, they “tick all the boxes” in terms of the perfect candidate and you are excited to see your business grow with the addition to your team.
Given that you have had your other employees with your business for a few years and never experienced any issues and they are all employed via a handshake agreement for the terms of their employment, why should you change this now?
Written employment contracts allow business owners and employer to define expectations, reduce risk and limit liability.
Well-drafted employment contracts will have clauses surrounding the following:
- the scope and duties of the employee;
- hours of work (including reasonable additional hours);
- a restraint of trade clause (ROT);
- confidential information clause;
- the rights of an employer to vary or terminate the contract; and
- lawfully permitted deductions.
In particular, for senior roles, a well-drafted employment contract will contemplate terms which prevent or in the very least, minimise the risk of issues arising from them, such as the employee jeopardising or taking advantage of the employer’s business which can lead to loss of profit. An example of this is an employee maintaining their own client lists taken from the employer during the course of employment.
In the above example, if a ROT clause is in the employment contract an employer has a basis to challenge the employee on the collection of their client lists both during and after employment with the business. An express ROT clause allows an employer to enforce their legal rights against an employee that is seeking to take the businesses confidential information.
At a more junior level, if an employer were to make deductions from their employee’s salary (such as repayment from a loan that was paid in advance on behalf of the employee by the employer) and there was no authorised deduction clause in the employment contract, or otherwise in writing, it is technically unlawful to do so. In this situation and absent this agreement for the deduction from the employee’s salary being in writing, the employee may actually take action against the employer for doing so, despite the employer taking monies that were paid as a loan in the first instance.
When the honeymoon is over and your ideal employee turns out to be not so ideal after all, having a well-drafted employment contract provides you with clear terms on which you may terminate their employment.
If any disputes arise, the employment contract provides you with your rights as an employer to limit liability and minimise risk. For example, the ideal employee had been attempting to set up their own business in direct competition with yours, after consultation with your employment lawyer, you proceed to terminate their employment on the basis of breach of their ROT clause in their employment contract.
Without the ROT clause, you have increased legal liability and risk in proceeding with termination of employment on this basis.
NB Lawyers, the lawyers for employers offer a consultation to discuss how they can assist you with drafting employment contracts according to your own business needs and requirements.