A contract is a document that lays out the terms and conditions of an agreement towards two parties.
A contract should clearly define the expectations of each party.
Beyond that, it can contain many factors. What each party receives from the agreement, how to perform duties, and how the agreement should be successfully completed.
These factors are clauses.
Employment contract notice period clauses and employment contract probation period clauses are examples of clauses.
Clauses in employment contracts help define an agreement between an employee and an employer. They cover everything from the potential for salary increases to early termination conditions.
What is a clause in a contract?
A clause is a specific section of a contract that lays out terms and conditions.
When you’re writing a contract, you outline the terms of the contract as clauses.
The Employment Rights Act 1996 states that employees should know of clauses in their contracts. An employer should inform employees of these details within two months of an employee’s start date.
Here are some other common employment contract clauses:
- Pay and salary: it’s not uncommon to have a salary increase clause in an employment contract.
- Pension: an employment contract pension clause includes information about pension schemes. This can include information about auto-enrolment and contributions that come out of an employee’s pay.
- Hours of work: the hours within a contract can include sector-specific conditions. For example, on-call clauses in an employment contract with flexibility clauses.
- Confidentiality clauses: confidentiality clauses in employment contracts protect information for a business. These include trade secrets and sensitive information.
- Contract duration: clauses can define whether a contract is a fixed-term contract or a flexible contract. These clauses can include information about probationary periods. They also include information about notice periods and the contractual notice an employee must give when leaving a role.
There are certain clauses called ‘restrictive covenants’. These specifically aim to prevent conflicts of interest and protect a business in the event an employee leaves them.
These typically include clauses that put restrictions on what an employee can or cannot do, even after leaving the company. Such as, working for a direct competitor.
There are also more specific employment clauses. These include exclusivity clauses in employment contracts. They can also include certain clauses that can arise in the event of early termination.
Conflict of interest clauses in employment contracts include:
- Non-disclosure clause: this clause requires confidential information to remain between two parties. This means that one party cannot share information belonging to the other party.
For example, an interview for a magazine can feature the interview itself while keeping the other party’s identity secret.
- Non-waiver clause: this clause protects parties who excuse another party in the event that certain contract terms aren’t met.
For example, a party approaches a loan provider and accepts that the provider has the right to charge high interest on a loan.
- Attorney fees clause: this clause states that if a case goes to court, the losing party must pay the winning party's attorney fees.
For example, a disgruntled customer takes a restaurant owner to court, yet the court finds the restaurant owner is in the right. The disgruntled customer must pay the restaurant owner's attorney fees.
- Statute of limitations clause: this clause states a specific time limit that a party can file a lawsuit if there’s a breach of contract.
For example, a customer that finds a delivered sofa is missing some cushions. This clause states that they only have 24 hours to report it as missing. If they don't, they ‘admit’ that the delivery and product was in an acceptable condition.
- Merger clause: this clause states that any previous contract or agreement is overridden by the current contract.
For example, a party accepts that they will be a brand ambassador for a certain soft drink. They agree to this, instead of representing a competitor as their brand ambassador for.
- Severability clause: this clause states that a party can enforce the contract even if there’s an invalid clause in the contract. This means that a party accepts the rest of a contract, even if there is an exploitable clause elsewhere in the contract.
For example, a contract messes up a clause that suggests a party doesn’t need to fix the roof of a house for sale. However, the rest of the contract states that the other party expects the entire house to be in an acceptable state when sold.
- Time of performance clause: this clause sets times when employees can perform contract duties.
For example, for health and safety purposes, a party cannot work at night in a construction site because it’s too dark and dangerous to do so.
- Indemnification clause: this clause releases a party from liability. This includes the event that they inadvertently cause unexpected losses or expenses.
For example, a tree surgeon that has cut down a tree that accidentally crushes a bike is not obligated to buy a new bike.
- Arbitration clause: the purpose of this clause is to resolve disputes through arbitration. Arbitration targets alternatives to court or employment tribunals.
For example, a small business expects to make an informal resolution for an employee injured on the job. This settlement agreement can be something along the lines of a month’s base salary.
A flexibility clause in employment contract example
Creating an employment contract can be difficult.
Contracts can benefit greatly from the correct clauses. Understanding examples of them are essential.
An example of one of these clauses is below:
“<Company name> reserves the right to make reasonable changes to your terms & conditions of employment.
If there are any minor changes, you will be notified in writing. These changes will take effect from the date of the notice or other date as specified.
Greater changes will be made only after consultation, and we will provide you with at least one month’s written notice.”
Award-winning expertise on employment contract clauses
Expert advice can help when deciding contract clauses for employees. For example, some may benefit from banning exclusivity clauses.
For expert assistance, contact Peninsula Business Services today for 24 hour HR services.