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Common contract terms

Summary

  • Contract terms do not have to be reasonable. (See Overview)
  • Groups of companies may need the power to transfer employees between the group companies. (See The parties)
  • Work should be defined and any power to change the work made clear. (See The work)
  • The remuneration package, including any overtime pay and bonuses, should be set out. (See The wage)
  • Location should be identified and any mobility requirements specified. (See Place of work)
  • Hours, including overtime, should be identified. (See The hours)
  • Holiday entitlement should be specified. (See Holiday)
  • If there are other benefits, such as sickness benefits, these should be included. (See Sickness benefits)
  • Restraint clauses are enforceable only if they are reasonable. (See Confidentiality and restraint clauses)
  • Notice clauses must provide for the statutory minimum period. (See Notice)

Future developments

Confidentiality clauses: Confidentiality clauses (also referred to as "non-disclosure agreements") may form part of an employee's contractual terms (see Confidentiality and restraint clauses). On 21 July 2019, the Government published its response to its Confidentiality clauses: measures to prevent misuse in situations of workplace harassment or discrimination consultation. The consultation was launched amid concern that employers are using such clauses to prevent victims of harassment or discrimination from disclosing their treatment. The Government has confirmed its intention to introduce legislation to:

  • ensure that confidentiality clauses will not be able to stop individuals from making disclosures to the police or regulated health and care or legal professionals;
  • require written statements of employment particulars to include the limitations of any confidentiality clause; and
  • require wording in settlement agreements and written statements of employment particulars to be clear and specific so that the limits of a clause are clearly explained.

The Government will also introduce enforcement measures to apply when confidentiality clauses are non-compliant, including additional compensation in an employment tribunal award where a confidentiality clause in a written statement of employment particulars does not comply with the new requirements.

The Government said that it will legislate to introduce the changes "when Parliamentary time allows".

Confidentiality clauses may also be included in settlement agreements and the Government has announced proposals specifically related to settlement agreements - see Alternative methods of dispute resolution for more details.

Overview

It is not possible to produce a list of all the possible terms that an employer might consider putting into a contract of employment. This section deals with some of the more common terms. However, the general principles illustrated are not restricted to the terms described and can apply equally to other terms.

There is no legal requirement that an employment contract be put in writing, but it is advisable to do so. Written terms are evidence of the terms that have been agreed and it is these terms that apply in the event of a dispute. There is a requirement, under s.1 of the Employment Rights Act 1996, to provide a written statement of employment particulars. See Written statement of employment particulars for more details of the particulars that must be included in the written statement.

With some exceptions, such as restraint of trade clauses and flexibility clauses (for which case law has established an implied term of mutual trust requiring employers to use flexibility clauses in a reasonable manner (see Terms implied by the courts in Express and implied contract terms)), contract terms do not have to be reasonable to be enforceable and the courts and tribunals do not see it as their responsibility to ensure that the parties have a fair contract. They enforce the terms that the parties have agreed.

Where statutory provisions provide a minimum benefit, they will override any lesser term in the contract. This is the case, for example, with statutory minimum notice under s.86 of the Employment Rights Act 1996. Statutory notice rights under the Act will supersede contractual terms that grant less notice.

Additional resources on contracts overview

FAQs

Policies and documents

The parties

The parties to the contract and their addresses should be identified. The parties must be identified in the written statement of employment particulars but their addresses do not have to be given (see Written statement of employment particulars). However, for clarity, employers should identify the parties' addresses.

If the employer is one of a group of companies and wishes to be able to transfer employees from one company in the group to another, it is vital that a term enabling it to do this is included in the contract.

The work

The written particulars should include either a brief description of the work or a job title (see Written statement of employment particulars). If the job description is included in the contract, then it will be contractual and changeable only in accordance with any provisions that may have been made for changing contract terms.

The job description will be included if it is referred to in the contract or offer letter and mentioning it in the written particulars will be evidence of its inclusion, unless it is provided that it will not be binding.

By including a clause to the effect that the employee can be required to carry out "any other duties", the employer can build a degree of flexibility into the job description. This is particularly important if the job description is included in the contract.

If the job description is not included in the contract and has not been made contractual in any other way, such as by the employee signing it to agree that this is the work he or she is bound to do under the contract, then it will be treated as a lawful instruction given by the employer and if disobeyed could result in disciplinary action (UBAF Bank Ltd v Davis [1978] IRLR 442 EAT).

If a job title is given it may not always give a clear indication of the work involved. In Cresswell and others v Board of Inland Revenue [1984] IRLR 190 HC, an employee working in the PAYE coding department had simply been given the grade "higher executive officer". This did not indicate his work so the High Court looked at what he actually did and held that to be his work.

In this same case the High Court drew a distinction between the work an employee is contracted to do and the way in which the work is to be done. The employer cannot change the work unless it has been given power to do so in the contract. But it is free to decide how the work shall be performed and will not be in breach of contract if it changes the mode of performance (or the room or other facilities) unless the mode of performance is specified in the contract itself.

In Cresswell the Inland Revenue introduced the computerisation of PAYE coding. The employees had never used computers before and refused to do so saying it was outside the scope of their contract. This was rejected. The employees could not refuse to use a computer. Use of a computer related to the manner of performance and was not contractual.

Changing the work

Sometimes an employer wants to change an employee's work during the notice period, taking the employee off sensitive work and putting him or her on other work. Generally, the employee can refuse to do any work outside his or her contract terms (Ford v Milthorn Toleman Ltd [1980] IRLR 30 CA) and bring a claim for breach of contract or rely on the employer's breach to bring a constructive dismissal claim.

Employees can refuse to carry out work outside their contracts. In Bull and another v Nottinghamshire and City of Nottingham Fire and Rescue Authority; Lincolnshire County Council v Fire Brigades Union and others [2007] All ER (D) 372 (Feb) CA, both fire authorities had agreed with the ambulance service that the fire brigade would provide a "co-responding service". If the ambulance service could not deal with a call within the critical eight minutes but the fire service could, the fire service would deal with the situation until the ambulance service arrived. The two services had statutory authority to do this. The Fire Brigades Union and the fire fighters challenged this practice. The Court of Appeal decision was dependent on the employment contracts. These incorporated a collective agreement that specified the duties of fire fighters - but did not include co-responding. The Court of Appeal could not imply a term simply because the fire fighters were trained to do such work, nor because the employers had statutory authority. The union had always resisted co-responding so it could not be said that it had been the intention of the parties to include it. The reasonableness of the request was not enough to allow the employer to insist that employees should comply.

However, in exceptional circumstances, and where the employer can justify it, there might be an implied term that the employer can ask the employee to do suitable, temporary, non-contractual work, according to the Employment Appeal Tribunal in Luke v Stoke-on-Trent City Council [2007] IRLR 305 EAT. (The case was actually decided on other grounds in the Court of Appeal (Luke v Stoke-on-Trent City Council [2007] IRLR 777 CA).)

However, in unfair dismissal claims the terms of the contract are not paramount. Even if there is no contractual right to require an employee to do different or additional work, if the request is reasonable and the work suitable, if the employee refuses, any subsequent dismissal can be fair (Farrant v The Woodroffe School [1998] IRLR 176 EAT).

The contract may give the employer discretion to change the work. This discretion must be exercised in accordance with mutual trust and confidence. But even when this has been taken care of there is another problem. If the change is to lower-paid work does the pay change too or just the work? There is no answer to this as it will depend on the way in which the court or tribunal interprets the contract and the decisions have gone both ways. In White v Reflecting Roadstuds Ltd [1991] IRLR 331 EAT, it was decided that both work and pay changed.

Does work have to be provided?

It was once thought that, with a few exceptions, the employer had only to pay wages and that the employee had no legal complaint if he or she was given no work, provided that he or she was paid. This enabled the employer to put an employee serving out his or her notice on garden leave, ie to send him or her home and not supply any work.

The issue was reviewed in William Hill Organisation Ltd v Tucker [1998] IRLR 313 CA. The Court of Appeal decided that whether or not the employee could be put on garden leave all depended on the contract terms. There had to be a term in the contract under which the employer had no duty to provide work. This could be either an express clause or an implied one. If the employee needs to maintain his or her skill or experience then it will be difficult to imply a term that work need not be provided. In the case itself Tucker was engaged in the highly skilled area of spread betting. There was no express term allowing garden leave and the court refused to imply one. William Hill broke the contract when Tucker was put on garden leave and had to pay damages.

However, in SG & R Valuation Service Co LLC v Boudrais and others [2008] IRLR 770 HC, the High Court held that, even in the absence of an express right to put employees on garden leave, the right to work is qualified. Senior employees in an international consulting and advisory company resigned. There was evidence that during their notice they collected confidential information. The employees wanted to leave and start work with a competitor immediately and the employer sought to prevent this but there was no express garden leave term. The High Court held that the employees' work required specialist skills and maintenance of contacts so there was a right to work in this case. However, this right is qualified. Under the employment contract an employee has to be ready and willing to work. If the employee has broken the contract in a serious way or made it impossible or impracticable for the employer to provide work (for example where the breach is one from which the employee will derive a profit), the employer is released from any duty to provide work and can put the employee on garden leave.

If the employer wishes to be able to put staff on garden leave (ie send them home without work during the notice period) an express clause is advisable to avoid any uncertainty (see Garden leave).

Additional resources on the work

Policies and documents

The wage

The details of the law relating to wages are in the Pay and benefits chapter. This section contains a brief outline of the main provisions.

The wage and period of payment are as agreed by the parties and must be included in the written statement of employment particulars (see Written statement of employment particulars). In addition, it is usual to include the manner of payment. If work has been done without a wage having been agreed the worker is entitled to a reasonable sum for the work done. The National Minimum Wage Act 1998 imposes a minimum wage that will replace any lower wage in the contract. For full details see National minimum wage.

Deductions from wages or requests for the repayment of wages are largely subject to part 2 of the Employment Rights Act 1996, which requires either a term permitting the deduction or repayment, or a written agreement to the deduction or repayment before the deduction or repayment is made (see Deductions from wages). It is important to put a clause in the contract allowing for the deduction or repayment of sums which might be due to the employer. This could include overpaid sick pay or excess holiday entitlement and payment for goods and services purchased from the employer, etc. The recoupment of training and relocation costs and loans can be provided in the loan or training and relocation agreement itself. Deductions or repayments for overpayment of wages are not covered by the Employment Rights Act 1996. No money can be clawed back if the employee has, acting in good faith on the employer's representation that the money was his or hers, acted to its detriment. This is so even if some of the money remains unspent (The County Council of Avon v Howlett [1983] IRLR 171 CA). The only solution is to put an express written clause in the contract permitting the employer to make the deduction and/or require repayment. If the term refers only to deduction, then there can be no demand for repayment and vice versa.

If the employer wishes to recoup training or relocation costs then either the contract or the training or relocation agreement must contain a clause permitting deduction and/or repayment. The legal status of this type of recoupment clause is unclear. It is thought that they may be restraint clauses and enforceable only if they are reasonable, or they might be penalty clauses and completely unenforceable. It is generally thought that, if the clause is reasonable and reduces through time to take into account the benefit that the employer has gained through the training or relocation, it will be enforceable (Strathclyde Regional Council v Neil [1984] IRLR 11 CS).

The courts have implied a term in employment contracts that the employer must pay the full wage even when there is no work unless the provision of work is beyond the control of the employer (Devonald v Rosser & Sons [1906] 2 KB 728 CA). "Beyond control" is interpreted strictly and does not take into account competition or supply difficulties. An express lay-off or guarantee pay term will override this. However, the common law implied term is far more generous than the statutory guarantee pay provision in part 3 of the Employment Rights Act 1996.

Pay may have to be calculated in accordance with ss.220-229 of the Employment Rights Act 1996, in relation to, for example, paid leave under the Working Time Regulations 1998 (SI 1998/1833) and the minimum wage. Where an employee has "normal hours of work" pay is restricted under s.221 to the employee's basic pay and will not include overtime, unless this is part of the basic hours (Bamsey and others v Albon Engineering [2003] All ER (D) 424 (Mar) EAT). Commission and bonuses can cause problems. Commission may not relate to work done in the pay period, as it is frequently paid late. In addition, commission paid on success may not relate to the work done, but to external factors. The same amount of work may be done but not result in a successful outcome. In Evans v Malley Organisation Ltd t/a First Business Support [2003] IRLR 156 CA, the Court of Appeal decided that commission was not a payment varying with the work done during the pay period and should not be considered as part of remuneration for the calculation of holiday pay. However, the Employment Appeal Tribunal has just decided that two bonuses - one relatively fixed and the other with some discretion - were part of remuneration. The one that was usually the same amount, although not inevitably so, was part of normal pay, while the discretionary one varied with work done (May Gurney Ltd v Adshead and others EAT/0150/06). Where pay varies with the work done in the pay period it must be averaged over the previous 12 weeks.

Employees are entitled to a written wage statement under s.8 of the Employment Rights Act 1996 (see Itemised pay statements and statements of fixed deductions for more details).

Bonuses

If entitlement to a bonus is set out in the contract or a document incorporated into the contract, the bonus is contractual. A discretionary bonus is contractual, but the discretion gives flexibility. However, the use of any discretion is subject to the requirement that the discretion is exercised in accordance with the implied term of mutual trust and confidence (Clark v Nomura International plc [2000] IRLR 766 HC). in Takacs v Barclays Services Jersey Ltd [2006] IRLR 877 HC the court thought that there could be a series of implied terms protecting the employee's right to a bonus, starting with the duty of mutual trust and confidence and including a term that the employer would cooperate with the employee in fulfilling the conditions for payment and one that the employer would not terminate the contract in order to prevent the employee earning his bonus. Mr Takacs claimed that his employer had removed him from the contract that would have enabled him to qualify for the bonus and then dismissed him to avoid payment. However, in Commerzbank AG v Keen [2007] IRLR 132 CA the court pointed out that it was the employer's function to assess the amount of a discretionary bonus, not the tribunal's. The employer was closing the desk where Mr Keene had worked and making the staff redundant. He claimed breach of contract because his bonus in previous years, although generous, had not been as large as his manager had recommended, and that he had been made redundant before the date for bonus payment so, under the bonus scheme, did not qualify for a bonus in his final year. The court said that, before he could succeed in his breach of contract claim, he would have to show that no other bank would have awarded or withheld bonuses in this way. He did not succeed. In Locke v Candy and Candy Ltd [2011] IRLR 163 CA, the Court of Appeal made clear that where a pay in lieu of notice clause was triggered on termination but was silent on precisely what the employee was entitled to be paid, the contract should be looked at holistically to ascertain whether or not a bonus that would have been paid during the notice period, was due. In this case the bonus clause made clear that Mr Locke had to be employed when it was payable. Therefore his claim failed.

A bonus may be non contractual, but once it is offered, under s.27(3) of the Employment Rights Act 1996, it is classified as wages, so failure to pay the bonus will amount to a deduction from pay and the employee will be able to apply to a tribunal for payment (Farrell Matthews & Weir v Hansen [2005] IRLR 160 EAT). See also Discretionary terms in Express and implied contract terms.

Car allowances

In addition to their wages, many employees are entitled to a car allowance. In Birmingham City Council v Wetherill and others [2007] IRLR 781 CA the council operated a car allowance scheme for essential car users that was based on a collective agreement. There were four bands of payment based on the capacity of the car. In 1993 the council wished to reduce these to two bands, which resulted in protests and industrial action. A national collective agreement reduced the number of bands to three, but the council paid only two. In 1997 the council settled breach of contract claims but continued to pay only two bands. It dismissed the employees and re-employed them with essential car user status, but with only two payment bands. This resulted in further breach of contract claims. The county court decided that the council had no power to change the payment scheme and that the essential car users were employed on four bands. The Court of Appeal held that the council could change the payments and had done so in accordance with the agreement. However, this contractual power to vary was subject to the implied term of reasonable notice of the variation, or there should have been a transitional period to allow employees to adjust to the new rates. As there was no adequate transitional protection the council was in breach of contract. In this case, the transitional period would not have extended beyond April 1998, so the employees were not entitled to damages for losses for the six-year period before they made their claims in 2004. Therefore the employees had no remedy.

Additional resources on wage terms

Policies and documents

Place of work

This is a key contract term. The place of work has to be notified in the written particulars (see Written statement of employment particulars) and if there is no designated place of employment the employee must be so informed and supplied with the employer's address. Employers that require their employees to be flexible in where they will work, should make this clear by including a mobility clause.

Implied terms

If there is no term on place of work one will be implied. It is unusual for the term to imply mobility. In O'Brien v Associated Fire Alarms Ltd [1969] 1 All ER 93 CA, the contracts contained no clause on place of work. The men lived in Kirby and had always worked in Liverpool and its environs, working in the company's North West Region. Work was diminishing in Liverpool but was available in Barrow so the regional manager ordered them to work in Barrow. The Court of Appeal held that, as they had only ever worked in Liverpool, Liverpool was their place of work. The fact that the trade was generally mobile and that from the employer's view the move was reasonable was irrelevant.

However, the courts and tribunals will sometimes imply a degree of mobility in that they often decide that the implied term shall be to work in any place within reasonable travelling distance of an employee's home. In Courtaulds Northern Spinning Ltd v 1. Sibson and 2. Transport & General Workers' Union [1988] IRLR 305 CA a move of one mile was acceptable and in Prestwick Circuits Ltd v McAndrew [1990] IRLR 191 CS it was reasonable to move 15 miles.

Discretion to relocate

Whenever the employer does exercise the power to relocate it must act reasonably and consult or it will breach the duty of mutual trust and confidence (see Variation of contracts). So, although the move in Prestwick was a reasonable distance from McAndrew's home, the employer ultimately lost because it gave the employee only three days' notice of the move and that was breach of mutual trust and confidence.

Sex discrimination and mobility

The employer must also check that a wide mobility clause is not discriminatory. In Meade-Hill and National Union of Civil and Public Servants v British Council [1995] IRLR 478 CA, all staff at grade G had to agree to be mobile throughout the UK. The Court of Appeal agreed that this indirectly discriminated against women and sent the case back to the county court to see if the employer could justify the discrimination for a valid business reason. A disabled person who found travelling difficult could bring a similar claim.

Homeworking

Employers often allow employees to work at home but this does not necessarily mean that they have a contractual right to do so.

In France v Westminster City Council EAT/214/03, Ms France, whose job involved the organisation of child protection case conferences, was allowed by her manager to stay at home on those days when she had to be out of the office for part of the day on a case conference. She then started working at home to write up the case minutes. The council had a homeworking policy but Ms France had not sought to use it. When a new manager ended the practice, Ms France claimed that she had a contractual right to work at home. The Employment Appeal Tribunal held that she had no contractual right to do so.

Employers considering allowing employees to work at home should make it clear whether this is a contractual entitlement or a concession. Where the right is given in respect of the right to request flexible working under the Employment Act 2002 it will be contractual.

Where employees are allowed to work at home, wholly or partly, the employer still has responsibility for their health and safety and will need a right to inspect the premises and equipment. There may also be a need to require employees to work on site from time to time, for example for training or where performance is slipping.

Working abroad

Employees may agree to work abroad and then find that they have to travel to an area where their life would be at risk. If this risk was not contemplated at the time the contract was made the employee can refuse to transfer to or work in that place even though that place falls within the area of his or her employment. He or she is entitled to refuse because of the additional risk (Bouzourou v The Ottoman Bank [1930] AC 271 JCPC and The Ottoman Bank v Chakarian [1930] AC 277 JCPC).

Employees who are sent to work abroad for more than one month must be provided with additional information in their written particulars before they leave (see Contracts of employment > Written statement of employment particulars).

The rights of employees working abroad within the EU for a limited period of time are subject to the Posted Workers Directive 1996 (96/C220/01) (see Posted workers). This requires the employee to be subject to the following provisions in the host state:

  • hours of work;
  • minimum paid leave;
  • minimum pay including overtime pay;
  • health and safety;
  • pregnancy and maternity provisions; and
  • equal treatment.

The host state may introduce minor exceptions.

Workers posted to the UK and who have the UK as their normal place of work have always been able to take advantage of UK law, but some amendments were made to comply with the Posted Workers Directive and ensure that workers posted on a temporary basis to the UK are also protected under UK law. Under s.32 of the Employment Relations Act 1999 and the Equal Opportunities (Employment Legislation) (Territorial Limits) Regulations 1999 (SI 1999/3161) (now spent, following the coming into force of the Equality Act 2010), the previous requirement of working normally in the UK was removed. This opened up the possibility that persons working abroad for British companies would be able to bring unfair dismissal and other statute-based claims. In Serco Ltd v Lawson; Botham v Ministry of Defence; Crofts and others v Veta Ltd and others [2006] IRLR 289 HL, the House of Lords clarified the situation. Claims can be brought by employees who normally work in the UK or who are on a temporary posting to the UK, and by employees who work mostly outside the UK but whose employment base is in the UK. Employees working outside the UK will be able to bring claims only if they work for a UK organisation and there is a strong overriding UK connection such as that they work in a British enclave, for example a British military base.

The guidance in Serco was widened further in Duncombe and others v Secretary of State for Children, Schools and Families [2011] IRLR 498 SC and Ravat v Halliburton Manufacturing and Services Ltd [2012] IRLR 315 SC, which established that there are no hard and fast rules on whether or not UK jurisdiction applies and that each case is fact sensitive. In Duncombe, the Supreme Court held that teachers who were seconded to European schools could bring unfair dismissal claims in Great Britain in respect of the non-renewal of fixed-term contracts, even though they worked wholly abroad. In Ravat, the Supreme Court held that the test is whether or not the connection between Great Britain and the employment is sufficiently strong to overcome the general rule that the place of employment is decisive. The Supreme Court emphasised that there should be no defining ground rules. Mr Ravat worked for a UK company based in Scotland. He worked on a rotational basis, working for 28 days in Libya, and returning home to Preston for 28 days, during which he was under no formal obligation to work. The work he carried out in Libya was for the benefit of a German associated company of Halliburton. The Supreme Court held that the employment tribunal could hear his unfair dismissal claim.

The Equality Act 2010 is silent as to the territorial scope of its employment provisions. The Equality Act 2010 explanatory notes (on the National Archives website) explain that this follows the precedent of the Employment Rights Act 1996 by leaving it "to tribunals to determine whether the law applies, depending for example on the connection between the employment relationship and Great Britain". This means that case law determining the territorial scope of the Employment Rights Act 1996 may be relevant in determining the territorial scope of the Equality Act 2010 (see Employees excluded from the right in Unfair dismissal). However, the test established under the Employment Rights Act 1996 may not be wide enough for the purposes of discrimination law rights, many of which are derived from European Union law.

Persons working outside the UK will be able to bring claims for breach of contract in the UK courts if their contract is governed by UK law.

Additional resources on place of work terms

FAQs

Policies and documents

The hours

Defining the hours

Subject to the Working Time Regulations 1998 (SI 1998/1833), the hours of work are fixed by agreement between the employer and employee. If there is no express term one will be implied and the implied term will most likely be the hours the employee is actually working or perhaps those applicable to his or her category of employment.

In Spence and others v City of Sunderland Council EAT/1255/98, an express term for 39 hours a week was not overruled by a custom of working 45 hours.

The hours of work should be set out in the written particulars (See Written statement of employment particulars) and should include any provision relating to normal working hours. If overtime is required, to avoid any doubt, this will need to be a contract term. Vague phrases such as "you may be requested to work reasonable overtime" should be avoided. "You are contractually required to work as rostered" or "you must work such hours as are needed to meet the requirements of the organisation" are far clearer.

Flexibility

It may be sensible to include a power to change the hours to meet future business needs.

If the employer has a discretion to change the scheduling of hours it must comply with the duty of mutual trust and confidence (see Variation of contracts).

Whether or not a change in the hours will also entail a change in pay will be a question of contract interpretation for the court or tribunal. It is clearly sensible to include a change in pay as an express term if that is what is required.

Flexible hours schemes will also need care, especially if the employer may want to tweak or change them or withdraw the facility completely or from particular staff. Without express clauses this will be difficult.

Working Time Regulations 1998

The Working Time Regulations 1998 impose maximum working hours for workers and set minimum provision for rest breaks. Under the Regulations, adult workers (ie workers aged 18 and over) cannot lawfully be required to work more than an average of 48 hours a week calculated over a rolling (or static) reference period of 17 consecutive weeks. The reference period may be extended to a maximum of 52 weeks under the terms of a collective or workforce agreement, or to 26 weeks in the case of certain workers. Young workers under the age of 18 may not be employed for more than 40 hours a week or for more than eight hours on any day. Adult workers may opt out of the maximum 48-hour week as long as they do so voluntarily and in writing. This is an individual decision that cannot be overridden by any contrary term in the worker's contract (or in a collective or workforce agreement). For full details of the provisions in the Regulations see Hours of work and [Article: 20376 "Rest breaks and rest periods"].

It was accepted that the limitation on hours under the Working Time Regulations 1998 is an implied contract term in Barber and others v RJB Mining (UK) Ltd [1999] IRLR 308 HC and Sayers v Cambridge County Council [2007] IRLR 29 HC. However, in Barber the High Court refused to grant an injunction as the parties were trying to settle. In Sayers, the complainant suffered depressive episodes due to work problems, including working in excess of 48 hours a week. The employer was not aware that she was vulnerable to depression, nor that she was having problems at the time. It was agreed that the hours limitation was an implied contractual term, and also fell within the implied duty of mutual trust and confidence. However, for there to be a breach of contract the employer had to foresee the damage and the council was unaware of her condition. There was, therefore, no breach of contract.

The contract may also include terms related to compliance with hours and rest break provisions. For example, in Hallett v Derby Hospitals NHS Foundation Trust [2019] EWCA Civ 1394 CA, the Court of Appeal considered a junior doctor's terms and conditions on the monitoring of rest breaks. It held that the Trust had breached the doctor's contract by its use of commercial software. The terms and conditions entitled the doctor to a 30-minute break after approximately four hours' duty and required the trust to "monitor junior doctors' New Deal compliance and the application of the banding system through robust local monitoring arrangements supported by national guidance". The Court of Appeal agreed that government guidance and circulars on monitoring junior doctors' hours (which it held were incorporated into the contract) meant that rest break compliance should be calculated using actual recorded data for each duty period, as opposed to expected data, which the software had used.

Additional resources on hours of work terms

Policies and documents

Holiday

Any entitlement to holiday or paid leave has to be included in the written particulars (see Written statement of employment particulars).

Statutory leave

The Working Time Regulations (SI 1998/1833) entitle workers to a minimum of 5.6 weeks' paid annual holiday, which equates to 28 days for a worker on a five-day working week.

The 5.6 weeks comprises:

  • four weeks (equivalent to 20 days) under reg.13 of the Working Time Regulations, which implements the four-week entitlement in the Working Time Directive (2003/88/EC); and
  • an additional 1.6 weeks (equivalent to eight days) under reg.13A of the Working Time Regulations because UK law is more generous than the Directive.

The 5.6 weeks' leave entitlement may include bank and public holidays, although there is no specific right for paid holiday to be taken on bank or public holidays themselves.

The four weeks' leave under reg.13 may not be carried over to another holiday year (although see Holiday and sickness absence interplay in Holiday and holiday pay for details of case law on whether or not employees can carry over leave in the event of being unable to take it during the same holiday year in which it was accrued, due to sickness).

Some or all of the additional 1.6 weeks' leave may be carried over to the following leave year if this is provided for in a "relevant agreement" (see "Meaning of "relevant agreement" and "workforce agreement" in Holiday and holiday pay).

For full details of statutory annual leave entitlement see Holiday and holiday pay.

Contractual leave

This is the leave provided in the contract. It is possible to have a contract that does not provide for any leave. In this case the employee would be entitled only to statutory leave.

Contractual leave (including any paid leave on bank holidays) is set against statutory leave and vice versa. If the employer provides additional contractual leave in excess of statutory leave, the leave that is to be treated as statutory leave should be identified.

Employers can fix their own conditions for additional contractual leave. Although it is usual to pay accrued leave entitlement on termination of employment there is no legal duty to do so. Even if the employer agrees to do so it may provide in the contract for the power to withhold accrued leave pay if the employee is dismissed as a result of misconduct or has not given notice.

Employees may also be allowed to carry additional contractual leave over into the following holiday year. If there is no term in the contract on the accrual rate for paying for accrued leave on contract termination the courts and tribunals divide the salary by 365 and not by the number of working days in a year (Thames Water Utilities v Reynolds [1996] IRLR 186 EAT). But the EAT has decided that pay for statutory leave should be based on days worked, not calendar days, and was critical of Thames Water as being out of step with practice (Leisure Leagues UK Ltd v Maconnachie [2002] IRLR 600 EAT).

Where, on termination, the employee has taken more holiday than his or her entitlement the employer can make a deduction from the final wage or insist on repayment only if there is a contractual clause allowing this. The Employment Rights Act 1996, Part II requires an implied or express term or consent before the deduction. Regulation 14 of the Working Time Regulations 1998 insists that the term be in writing (Hill v Chapell [2003] IRLR 19 EAT).

Bank holidays

Most employers allow employees paid leave on bank holidays. These are also referred to as public or statutory holidays. "Bank holidays" relating to the different parts of the UK are defined in the Banking and Financial Dealings Act 1971. Statutory holidays are presumably the same. Public holidays are as declared by the Crown or by custom. In England and Wales Christmas Day and Good Friday are customary holidays. There is no entitlement to leave or paid leave on bank or public holidays unless there is an express or implied term to that effect.

Additional resources on holiday terms

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Sickness benefits

Statutory sick pay is not dealt with in this section but in Sick pay.

Discretionary benefits

Many contracts provide for sickness benefits such as contractual sick pay, medical checks and health care, private medical insurance or permanent health insurance. Often these benefits are described as "discretionary". This does not mean that they are not legally binding but that the employer has some discretion in respect of them (see Express and implied contract terms). The mere use of the word "discretionary" does not explain where the discretion lies and it would be for the court or tribunal to give it a meaning. It is unlikely that a court or tribunal would interpret discretionary as allowing the employer to withdraw the benefit from an individual, although it might allow a change of provider or a change of benefits. It would be better however for the employer, if possible, to describe the discretion.

Insurance-based benefits

Where the benefit is provided by an insurance company it is often assumed that, if the insurance company does not accept the claim, the employee has no further avenue to pursue. In fact he or she may well be able to sue the employer. This is illustrated by Villella v MFI Furniture Centres Ltd [1999] IRLR 468 HC. Villella's contract provided him with permanent health insurance. Both Villella and MFI considered that Villella qualified for the benefit, but the insurance company refused to pay. It was held that MFI had to pay. It had promised Villella permanent health insurance and had chosen a particular company to meet that promise on its behalf. If the insurance company let it down then MFI had to pay. If the employer intends the employee to have only the benefits that the insurance company decides to provide, that should be clear in the contract.

If there is any conflict between the benefit as expressed in the contract and that in the insurance policy or scheme, it is the contract term that will prevail. However, often both the contract and the policy or scheme use vague phrases such as "unfit to work". In Walton v Airtours plc and Sun Life Assurance Company of Canada [2003] IRLR 161 CA, the Court of Appeal decided that "unable to follow any occupation" had to be interpreted in a commonsensical way and meant regular, not temporary, work for an indefinite period. Walton, a pilot, had chronic fatigue syndrome but could occasionally work part time. He was unable to follow any occupation. In Jowitt v Pioneer Technology (UK) Ltd [2003] IRLR 356 CA, the Court decided that the employee's being "unable to work" did not mean "unable to do his previous job" but that there was no continuously paid work that he could be expected to follow.

Contractual right to benefits

If an employer provides sickness benefits it will be a breach of contract to dismiss an employee on grounds of ill health while he or she has sickness benefit outstanding. It may be fair to dismiss, but it will inevitably be in breach of contract as in Adin v Sedco Forex International Resources Ltd [1997] IRLR 280 CS.

Adin suffered from manic depression and would never again work on an oil rig. This could well justify an ill-health dismissal, but he had outstanding sick pay and Sedco dismissed him before this was exhausted. The court had little difficulty finding that this was a breach of contract. He was also entitled under his contract to long-term disability benefit that would pay out benefits until he died. It was also a breach to dismiss him on ill health grounds and prevent him from taking advantage of this benefit.

If an employee is entitled to permanent health insurance it may be a breach of contract to dismiss him or her even though other contract terms would make the dismissal lawful. In Aspden v Webbs Poultry & Meat Group (Holdings) Ltd [1996] IRLR 521 HC, the employer could dismiss the employee if he had been off sick, cumulatively, for 26 weeks in a year. The employee was entitled to permanent health insurance. Aspden suffered from angina and he had been off for 26 weeks so he was dismissed. This was a breach of contract because Aspden had been given a contractual right to permanent health insurance and had not been given the opportunity to claim it. The employer should have delayed exercising its dismissal rights until the employee had had an opportunity to claim permanent health insurance. A similar situation arises in respect of pension claims, whether for early retirement or for medical retirement. The employee should be given an opportunity to apply before the contract is terminated. But this applies only where the termination is based on health. It does not prevent dismissal for misconduct or for redundancy. Nor will it prevent dismissal where the employee refuses to comply with a sickness reporting procedure or is uncooperative (Briscoe v Lubrizol Ltd [2002] IRLR 607 CA).

In Lloyd v BCQ Ltd EAT/01408/12 and EAT/0239/12, the Employment Appeal Tribunal (EAT) held that there was no implied term that a dismissal could not take place while entitlement to permanent health insurance remained. In this case, the contract of employment did not include an express entitlement to health cover but there was a clause entitling the employer to dismiss for ill-health reasons. Of particular relevance, there was an entire agreement provision in the contract that post-dated the introduction of the permanent health insurance cover and superseded previous agreements.

However, in Awan v ICTS UK Ltd [2019] IRLR 212 EAT, the EAT held that an implied term of the contract of employment prohibited the employer from dismissing the employee for medical capability while he was entitled to receive long-term disability benefits. Referring to Aspden, the EAT acknowledged that "an employer's power to terminate an employee's contract is restricted if termination will deprive the employee of certain rights conferred under a long-term disability scheme". It held that "the whole purpose of permanent health insurance or other disability schemes would be defeated if an employer could end entitlements under such a scheme by dismissing employees when they become unfit for work".

With private medical insurance the issue may be whether the employer has a discretion to change the provider or the benefit. In Baynham and others v Philips Electronics (UK) Ltd and others 7 July 1995 HC, the court took a very restrictive view of the meaning of "discretionary", deciding that it was not enough to head a group of rights as "discretionary". The actual wording of the benefit had to be scrutinised - and there was no use of "discretionary" or a similar word in the clause itself.

There are some problems common to all insurance-based benefits. If the employer simply promises cover, eg private medical insurance, and the chosen insurance company does not provide the cover to the employee, then the employer itself must provide it. Because the employer promised private medical cover and then selected a company to meet that promise on its behalf, the employer is liable for any failure on the part of the chosen provider (Rutherford v Radio Rentals [1991] IRLB 419 CS).

However, where the insurance company refuses to provide a policy benefit or there is a dispute, the employer should take action against the insurer on the employee's behalf, but subject to a cost indemnity from the employee (Marlow v East Thames Housing Group Ltd [2002] IRLR 798 HC).

Procedures

Many sickness benefits depend on an employee's complying with a procedure and are tied to a sickness policy. According to the Court of Appeal in Wandsworth London Borough Council v D'Silva and another [1998] IRLR 193 CA a policy may be legally binding even though it has not been incorporated into the contract. The courts may infer that the parties intended it, or parts of it, to be binding. In this case the Court of Appeal concluded that there was no intention to make the number of days of absence that operated as the trigger point for considering whether any action needed to be taken in the case of long-term sickness legally binding. But it thought that the sickness dismissal procedure would have been binding. If the procedure is not to be binding it is better for the employer to say so.

The sickness reporting and documentation procedure does need to be considered. It may not be satisfactory for the employer simply to rely on the procedure for statutory sick pay (SSP). SSP is not paid for the first three days so self-certification begins only then. Employers should consider:

  • a time by which sickness must be reported on the first day of absence;
  • self-certification of sickness for all absences without prior approval;
  • the requirement of a doctor's certificate after seven days' absence or earlier if necessary;
  • asking for employees' agreement to undergo at any time a medical examination by a practitioner of the employer's choice, the cost to be met by the employer.

Holding health information

The General Data Protection Regulation (2016/679 EU) (GDPR) is in force from 25 May 2018 and has comprehensively reformed the rules relating to data protection. Information relating to health is a special category of personal data under the GDPR and subject to strict rules in relation to processing. See Data protection for more information about the requirements of the GDPR in general and Special categories of personal data for details of the specific rules relating to special categories of personal data, including health records.

Additional resources on sickness benefits terms

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Confidentiality and restraint clauses

An organisation's information may be its lifeblood and the employer will seek to protect it in various ways. It may rely on an employee's implied duty of confidentiality or may expand on this by putting restrictions on the employee's activities during and after employment. Post-employment restraints are void unless they are reasonable (a rare example of a term having to be reasonable) and are very strictly construed. Even if the employer has shown that a restraint is no more than is necessary to protect its legitimate interests, the clause will be unenforceable if the employee can prove that it is contrary to the public interest - although few cases reach this stage.

Implied restraints during employment

The duty of confidentiality: Any person receiving confidential information can neither use it for his or her own benefit nor pass it on to another person, unless, of course, he or she has permission. This applies not only to the employer's information but also to information about others that the employee receives during employment. This duty continues to apply after employment ends. It lasts until the information has been put into the public domain other than by the employee's breach of duty. One problem with this implied duty is that it can be difficult to identify the confidential information or to separate the information from the employee's own skill and knowledge, which he or she is entitled to use. Therefore, express clauses are more useful.

In Faccenda Chicken Ltd v Fowler and others [1986] IRLR 69 CA, the employer operated a business selling chilled chickens from travelling vans. The manager left and set up a similar business. The key to success lay in the routing and the pricing, which was held to be the employee's skill and not the employer's confidential information. Fowler was not using the identical routes. Had he done so this would have increased the employer's chance of success in the case as this would have been the employer's information. It has always been possible to disclose confidential information where it would be in the public interest to do so.

In Initial Services Ltd v Putterill and Another [1967] 3 All ER 145 CA, the employer could not prevent the employee disclosing information showing that the employer was part of an illegal cartel.

The duty of fidelity: An employee owes a duty of fidelity; a duty not to harm the employer, seven days a week and 24 hours a day. This enables the employer to dismiss an employee where there is a serious prospect of harm, even though none has yet occurred. In DC Foot v Eastern Counties Timber Co Ltd East Harling [1972] IRLR 83b IT, a wages and accounts clerk whose husband had set up in competition with the employer was fairly dismissed. It was decided that, despite her protestations, there was a grave risk that she would reveal confidential information. However, the courts and tribunals require clear proof of a serious risk or this duty would be draconian. The duty requires the employee to inform the employer of the misbehaviour of fellow employees (Swain v West (Butchers) Ltd [1936] 3 All ER 261 CA) but not, as a rule, to disclose his or her own breaches. There is an exception where the employee is fraudulent or where, in negotiations, he or she is bound to disclose relevant information pertaining to those negotiations. In Item Software (UK) Ltd v Fassihi and others [2004] IRLR 928 CA, Mr Fassihi, the sales and marketing director of Item Software, was involved in negotiating a major contract on behalf of his employer. He tried to divert the contract to a company owned by a friend in expectation of reward. The Court of Appeal upheld the High Court's decision that the employee owed his employer a duty of fidelity that required him to disclose relevant information relating to the negotiations - in this instance, including his own activities. Mr Fassihi was also a director of the company and directors owe a higher duty of the utmost good faith. By acting in competition with the company he was in breach of this duty.

Directors and senior managers have a higher duty - a fiduciary duty (see Terms implied by the courts in Express and implied contract terms).

Express clauses during employment

Employers may include express clauses in the contract to apply during employment, which are aimed at protecting their business. Examples of such clauses include the following:

  • An express confidentiality clause identifying the types of information which are to be treated as confidential. This clause can be drafted to apply after employment has ended (subject to the Public Interest Disclosure Act 1998).
  • A "no moonlighting" clause which prevents the employee from working for anyone else, or undertaking a specified type of work, without the employer's consent.
  • A conflict of interest clause under which the employee has to declare any conflict of interest arising from his or her own or his or her spouse's, partner's or family's activities. This is important where there is a risk that a relative or a firm in which the employee is interested may tender for work or otherwise be a supplier or client.
  • A financial interest clause which limits the percentage of shares the employee, his or her spouse or partner, or his or her minor children can hold in any company.
  • A clause restricting the employee from talking to the media without prior authority. (This is subject to the Public Interest Disclosure Act 1998 (see Whistleblowing).)

Enforcing implied and express clauses that apply during employment

Where, during employment, there has been a breach of a restraint, confidentiality, fidelity or fiduciary duty the employer can treat the breach as a repudiation of the contract by the employee and terminate the contract summarily. However, to exercise this right, the employer must act promptly or it may be found to have affirmed the contract. In Cook v MSHK Ltd [2009] IRLR 838 CA, a senior executive gave six months' notice of his resignation to join Warner, a competitor. He allegedly assured MSHK that his role at Warner would not be in direct competition with that at MSHK. When MSHK discovered that this was not the case there was an altercation, following which Mr Cook went on sick leave. During his period of sick leave MSHK did not raise the issue of his breach of contract. It continued to pay him and encouraged him to return to work. It was fearful that he would bring a claim of breach of mutual trust and confidence if it raised the issue of his breach during his sickness absence. When he returned to work he was dismissed. MSHK brought a claim for damages for breach of the fiduciary duty, alleging that Mr Cook was in breach of the contractual duty of good faith and fidelity. It also sought a declaration of the lawfulness of the dismissal. The Court of Appeal held that MSHK had full knowledge of Mr Cook's breach and by not reserving its position by indicating that the question of his breach was still open and to be considered, it had affirmed the contract and lost the right to dismiss him summarily.

Express clauses applying after employment

Express clauses that apply after employment are void and unenforceable unless the employer can show that they are reasonable for the parties and protect a legitimate interest. Although these clauses may have the effect of preventing competition, and may even be expressed as preventing competition, the prevention of competition is not a legitimate interest. Clients, suppliers, pricing and discounts, strategies and marketing plans, research and development, production methods, skilled and trained staff, etc are all legitimate interests. The employee's skill, knowledge and experience are not. The employer must be able to identify which interest it is protecting (FSS Travel and Leisure Systems Ltd v Johnson and another [1998] IRLR 382 CA).

The greater the amount of confidential information that the employee has, the more likely it is that a restraint clause will be reasonable. In Thomas v Farr plc and another [2007] IRLR 419 CA, Mr Thomas had been the company's managing director. As such, he had access to an extensive amount of confidential information, including strategic and financial information. His contract included a clause forbidding him to solicit clients and one preventing him from competing for 12 months. The Court of Appeal decided that the duty of confidentiality was insufficient to protect the company because it was difficult to identify its extent. The non-solicitation clause was therefore needed. As the clause was difficult to police, it was reasonable to have a 12-month clause preventing competition.

Even if a term is reasonable, if the employee can show that the clause is contrary to the public interest, it is still void. There are few cases on this point. In Bull v Pitney Bowes Ltd [1966] 2 All ER 384 HC the employer made it a condition of payment of a pension that the employee should seek the approval of the pensions board. The approval could not be refused unreasonably. This was found to deprive the country of the services of an efficient manager and so be contrary to the public interest.

It may be reasonable to have a restraint clause that protects not just the employer but also other companies in the same group about which the employee has valuable information. However, there must be a real risk.

If the contract ends as a result of a breach by the employer then it cannot enforce any restraint clauses; they are all lost (Briggs v Oates [1990] IRLR 472 HC). Employers should be aware that giving a payment of wages in lieu of notice may be in breach of contract. It will not be a breach if there is a contract term permitting the payment. However, if there is no clause, paying wages in lieu of notice will be a breach of contract (Delaney v Staples (t/a De Montfort Recruitment) [1992] IRLR 191 HL).

The normal remedy for breach of a restraint clause is an injunction to prevent the breach, rather than damages. There are three types of injunction:

  • An ex parte injunction, which is an emergency injunction without the presence of the defendant. This is intended to maintain the existing position pending a fuller consideration.
  • An interlocutory injunction, which is a temporary injunction lasting until the full trial. This is granted on the basis of legal argument and affidavits and is based on a consideration of the convenience and inconvenience to the parties.
  • A permanent injunction.

Most cases are dealt with at the interlocutory stage.

Traditional restraint clauses: These prevent an employee from undertaking specified work in a specified area for a specified time. All three restraints - work, place and time - have to be right. These clauses are difficult to draft now that modern communications have removed many geographical restrictions.

In Office Angels Ltd v Rainer-Thomas and O'Connor [1991] IRLR 214 CA an employment agency sought to restrain employees from working within a certain radius of its branches. The clause was too narrow as clients' orders were placed over the phone and it was of no concern to them where the office was located. The restraints must also reflect the risk.

However, in Merlin Financial Consultants Ltd v Cooper [2014] IRLR 610 HC, the ex-employee argued that restrictions that applied to "any part of the UK" were too widely drafted as the employers' clients were mainly in London and the South East. Commenting that "the financial services market is ... a single geographical market" the High Court found that the restrictions were reasonable.

In Lansing Linde Ltd v Kerr [1991] IRLR 80 CA the court decided that an employee who attended meetings at which international strategy was discussed had not obtained sufficient information on international activities to justify an international restraint.

In Patsystems v Neilly [2012] IRLR 979 HC, the High Court made clear that the enforceability of a restraint clause is judged according to its enforceability at the time that it was entered into. The parties accepted that a non-competition clause was void when they entered into it in 2000. The employee was promoted in 2005 and the clause was not reviewed when some contractual provisions changed. An endorsement stating that his other previous terms remain unchanged was insufficient to reinstate the non-competition term.

Non-solicitation clauses: These clauses restrain the employee from soliciting, directly or indirectly, clients or suppliers of the employer. Sometimes the restraint is extended to prospective clients and suppliers. For it to be reasonable the clients must be recent ones, say within the last two years, but this will depend on the nature of the business. The employee must have had some direct or indirect contact with the client or supplier and the employer must also be protecting a legitimate interest. The period of the restraint must be reasonable.

In Wincanton Ltd v (1) Cranny (2) SDM European Transport Ltd [2000] IRLR 716 CA, Wincanton was a haulage company and a subsidiary of Unigate. A clause preventing competition "with any business carried on by the Company or any of Unigate's subsidiaries or associated companies" was too wide. But a clause preventing the employee from soliciting persons with whom he had dealt in the past two years in respect of services which he himself had been involved in during the last 12 months was self-limiting and valid.

In Basic Solutions Ltd v Sands [2008] EWHC 1388 HC, Mr Sands' contract forbade him, for a period of 12 months after the termination of his contract, from soliciting business from "relevant customers" for the sale of "relevant products or services". Mr Sands resigned and went to work for a competitor. Basic Solutions submitted samples of a test product to deal with the problem of leaves on the line, to Network Rail, with a view to being permitted to tender for a contract. It learnt that Mr Sands proposed to tender for the contract on behalf of another company, with a rival product. Basic Solutions sought an injunction against Mr Sands, alleging a breach of the express contractual provisions. However, the High Court held that Network Rail was not a customer. A customer would have an ongoing relationship with the employer. The mere supply of technical material was not enough to show that there had been a breach of the term. The High Court also considered that the 12-month non-solicitation period was excessive and more than was required to meet Basic Solutions' needs.

Non-dealing clauses: These are similar to non-solicitation clauses. They prevent the employee from entering into a contract with a client or supplier who has not been solicited but who has independently approached the employee.

Confidentiality: The confidentiality clause drafted to cover the period of employment can be extended to the post-employment period (see above). However, there is another type of confidentiality clause that prevents an employee accepting any job in the proper performance of which he or she might have to disclose confidential information belonging to the employer. The information would have to be described and the time limits reasonable. This was used in Norbrook Laboratories Ltd v Smyth 30 September 1986 HC to prevent a production employee working for a rival pharmaceutical company.

No poaching: These clauses are permitted to a limited extent. The employer has to demonstrate a legitimate interest in the retention of staff, so the clause has to be limited to staff with skills, experience or training. If it applies to all staff it is too wide. The employee attempting to poach the staff must also have had some contact with them - directly or indirectly.

In Alliance Paper Group plc v Prestwich [1996] IRLR 25 HC, Prestwich had agreed not to entice away or endeavour to entice away any employee who at any time within the six months preceding termination of Prestwich's contract had been an employee of the company in a senior capacity. He left to found his own competing business and several other employees joined him. It was decided that "senior capacity" was capable of definition. It was also accepted that the employer had a legitimate interest in maintaining a well-trained workforce. The clause was reasonable and Prestwich was in breach.

Drafting and interpretation: Restraint clauses are notoriously difficult to draft and two points are immediately obvious about professionally drafted clauses. First, they are divided into sub-clauses and it is provided that each stands alone and that if one fails this will not affect the validity of the others. Second, they are drafted to take advantage of the so-called "blue pencil" test. Under this test, if the court can strike out the offending words and the clause still makes sense, it can be enforced. Clauses are often drafted this way, so that, for example, the country or region is divided into smaller parts such as counties, and the products are set out in minute detail allowing for the operation of the blue pencil.

The Supreme Court considered the blue pencil test in Tillman v Egon Zehnder Ltd [2019] IRLR 838 SC. The case concerned a six-month post-termination restraint clause that provided that the ex-employee could not "directly or indirectly engage or be concerned or interested in any business carried on in competition ...". The Court of Appeal (in Tillman v Egon Zehnder Ltd [2017] IRLR 906 CA) had held that the clause barred the holding of competitors' shares and was therefore unenforceable as it was too wide and in restraint of trade. The words "or interested" could not be deleted to save the covenant. The Supreme Court agreed that the word "interested" covers a shareholding, resulting in the clause being unenforceable. However, it allowed severance of the term "or interested" from the clause so that the remainder of the clause could be enforced. The Supreme Court approved the approach in Beckett Investment Management Group Ltd and others v Hall and others [2007] IRLR 793 CA, which it concluded permitted severance of terms in a restrictive covenant provided that the unenforceable provision could be removed without the need to make other changes to the clause (ie the blue pencil test) and without changing the character of the agreement from that originally agreed by the parties. Removal of the words "or interested" from the clause satisfied these requirements.

The need for careful drafting is emphasised by Prophet plc v Huggett [2014] IRLR 797 CA, in which the Court of Appeal would not amend an unambiguous clause that unintentionally allowed the ex-employee to work for a competitor.

Where a restraint clause is agreed on termination the employer must be able to show that it has provided some benefit to the employee (ie consideration) in return for the new restraint. In many cases the employer makes a payment. Without consideration the new restraint will be unenforceable (WRN Ltd v Ayris [2008] IRLR 889 HC).

Additional resources on confidentiality and restraint clauses

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"How to" guidance

Intellectual property

There is only limited protection for an idea that has not been put into some permanent form or patented. If it is revealed in circumstances indicating that the communication is confidential then the duty of confidentiality applies. Do an employee's ideas belong to the employer? Is he or she bound to reveal them? It will depend on the circumstances and whether the employee was employed expressly or impliedly to produce ideas. An express clause would be sensible.

If the employer runs an ideas scheme under which the employee is recognised or rewarded then the idea may have copyright or patent protection. Ideas schemes should be in writing and properly communicated to the employee. The employee then accepts the terms when he or she proposes his or her idea.

The copyright in any material that is related to work belongs to the employer (Copyright, Designs and Patents Act 1988). This is so even if the employer did not ask for the work to be done and the work was undertaken by the employee at his or her own expense and in his or her own time, so any writings describing the employee's work belong to the employer. If the writing refers to client work then the copyright may well lie with the client. Similar rules apply to design copyright and computer systems.

Patents

The ownership of an employee's inventions is covered by the Patents Act 1977. If the invention could have been expected as a result of the employee's work it will belong to the employer. If it could not then it belongs to the employee. To avoid doubt some employers make it a contract term that the employee should produce ideas and inventions to further the business.

However, even if the invention belongs to the employer the employee may apply to the Comptroller-General of Patents, Designs and Trade Marks for a compensation award if he or she believes that the employer is getting outstanding benefit from his or her invention.

Where employees are involved in producing ideas, copyright materials or inventions the employer should consider terms relating to ownership.

Additional resources on intellectual property

Policies and documents

Notice

Notice rights and obligations must be included in the written statement of employment particulars (see Written statement of employment particulars). The employer does not have to set out the whole term but can refer instead to an accessible collective agreement or to s.86 of the Employment Rights Act, which sets out minimum statutory notice. However, it is recommended that the term be set out in full.

The contract term

The employee is entitled to the period of notice in the contract or the statutory minimum period in s.86 of the Employment Rights Act 1996, if that is longer. Therefore, the first step is to identify the contractual notice.

Notice may be in an express clause. If there is no express clause the employee is entitled to a reasonable period of notice at common law. The courts' view of a reasonable period of notice has always been reasonably generous. In Thomson v Gatti The Times 22 June 1906 KBD, a chorus girl was awarded two weeks' notice.

Senior staff and directors can expect longer periods of notice. Directors are commonly awarded six months' notice but this rule is not sacrosanct.

In Clark v Fahrenheit 451 (Communications) Ltd [2000] EAT/591/99, the director of a business was awarded only three months' notice because of her short service, the known volatility of the particular industry, and the fact that she was offering only three months' notice to other senior staff.

Statutory minimum notice

Statutory minimum notice, which replaces and supersedes any shorter period in the contract, and is in s.86 of the Employment Rights Act 1996. The minimum notice to be given by the employer is dependent on the employee's length of continuous employment and is as follows:

Length of continuous employment Minimum notice required
one month but less than two years one week
two years but less than 12 years one week for each year of continuous service
12 years or more 12 weeks

The minimum notice to be given by the employee is one week but only when he or she has completed one month's service.

The employer and employee can agree to less notice or to waive their rights but only in the event of termination - not as a contract term. Wages in lieu can be paid if there is a term in the contract permitting this or the employee agrees to accept them (s.3 of the Employment Rights Act 1996).

Wages in lieu of notice

Payment of wages in lieu of notice will be a breach of contract in the absence of an express clause permitting the payment. See Termination payments in Basic pay and benefits for details of income tax liability in relation to payments in lieu of notice.

Rights during notice

During notice an employee remains entitled to all his or her employment rights. Where he or she is not entitled to pay under the contract he or she will still be entitled to his or her wage under s.88 of the Employment Rights Act 1996, if the reason why it is not being paid is due to:

  • the employer having no work for him or her to do;
  • the employee being absent through sickness or injury;
  • the employee being absent wholly or mainly because of pregnancy or childbirth or because he or she is on adoption leave, parental leave or paternity leave;
  • the employee being on leave and not entitled to payment.

As a consequence of s.87(4) of the Employment Rights Act 1996, this right applies only if the employee's contractual notice does not exceed the statutory notice by more than one week (Scotts Company (UK) Ltd v Budd [2003] IRLR 145 EAT).

It is irrelevant whether it is the employer or the employee that ends the contract.

Additional resources on notice terms

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Garden leave

Employers sometimes put employees who are under notice of termination on garden leave. Their contract continues and they are entitled to full benefits, but they are not provided with any work. There has to be an express or implied term in the contract permitting the employee to be placed on garden leave, and it is advisable to have an express term (William Hill Organisation Ltd v Tucker [1998] IRLR 313 CA). The objective of garden leave is to prevent the employee working for the new employer, but to do this the contract needs to have a clause providing that the employee cannot work for anyone else during the currency of the contract unless the employer gives express consent, or the employee must be told that he or she cannot work for anyone else while on garden leave.

The employer can enforce the garden leave, in the sense of being able to hold the employee to his or her contract and prevent him or her from joining a new employer, only so long as it has a legitimate interest to protect and the period of restraint is not too long. So in the event of an employee being placed on one year's notice, the employer may be able to enforce it for only six months. If there is no legitimate interest to protect, the employer may be completely unable to enforce garden leave (Provident Financial Group plc and Whitegates Estate Agency Ltd v Hayward [1989] IRLR 84 CA).

If the employee has both a garden leave clause and a restraint clause in his or her contract, the courts do not add the two together and consider reasonableness, but the length of the garden leave clause could affect the reasonableness of the restraint clause (Credit Suisse Asset Management Ltd v Armstrong and others [1996] IRLR 450 CA).

It was held in SG & R Valuation Service Co LLC v Boudrais and others [2008] IRLR 770 HC that, even where there was no garden leave clause in the contract, the employer's obligation to provide work was qualified. Where the employee has broken the contract in a serious way or rendered it impossible or impracticable for the employer to provide work, the employer can put the employee on garden leave.

Additional resources on garden leave

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"How to" guidance

Policies and procedures

If policies or procedures are included in the contract they will be enforceable in exactly the same way as the other terms. For the effect of this see Express and implied contract terms.

It is possible to include a reference to the policy or procedure and state that it is for information only and that the policy or procedure is not legally binding.

Alternatively, the employer could retain the power to change the policy or procedure by incorporating "such policy or procedure as may be issued from time to time".

Superseding and other terms

A superseding term

This is a useful term whenever one contract is being replaced by another or there have been protracted negotiations or it is feared that terms additional to those in the contract may have been discussed. It provides that the terms in the contract or attached document are the only terms that will apply to the employment and that they supersede any other agreements or arrangements that may have been made.

A term to resolve conflicts

Where there are collective agreements, handbooks or schemes incorporated into the contract that may conflict with terms agreed between the parties a term identifying which should prevail can avoid difficulties.

A term indicating the law and courts having jurisdiction over the contract

This applies to England, Scotland and Northern Ireland as well as other countries. However, if the chosen jurisdiction is not closely connected with the performance of the contract the court may reject it under the Enforcement of Foreign Judgements Convention (Mulox IBC Ltd v Geels [1994] IRLR 422 ECJ).

Contracts (Rights of Third Parties) Act 1999

The Contracts (Rights of Third Parties) Act 1999 permits persons who are not parties to a contract to enforce that contract if the contract empowers them to do so or the court decides that it was intended to give the third party this right. This may give rights to employees in contracts entered into by the employer that are intended to provide them with benefits, for example insurance contracts. It does not allow third parties to enforce employment or agency worker contracts.

However, it is possible to exclude the operation of the Act.

Key references

Legislation

Patents Act 1977
Copyright Act 1988
Employment Rights Act 1996
National Minimum Wage Act 1998
Contracts (Rights of Third Parties) Act 1999
Working Time Directive (2003/88/EC)
Working Time Regulations 1998 (SI 1998/1833)