Getting your startup to the point where you need to hire staff is an important milestone. However, there is more to it than just interviewing people and finding the best candidate. As an employer, you will have certain legal obligations in respect of the staff you hire.
Once you have found the perfect candidate and before you hire him or her (amongst other things), you need a bulletproof employment contract covering all important aspects of that individual’s employment.
In the information age we live in, this is all the more important for startups. They need strong protection of business secrets and confidential information.
However, for many startups, the legal aspect of hiring employees is often overlooked. This results in court battles with their former employees when they start their own competing business or work for a competitor.
Why you should use an employment contract template
Employment rights available to any individual are governed in two ways: statutory law and employment contract (whether oral or written).
As an entrepreneur, you might lack sufficient knowledge of the UK employment law to understand your obligations towards the person you hire.
The good news is that you can create a strong employment contract by using an employment contract template that protects your business without navigating through the extensive UK employment law.
Oral employment contract vs written employment contract
Whenever you hire staff, a contract will exist between you and the individual. It is up to you whether you write it down or not. While an oral contract will be legally binding, it has the significant disadvantage of being easily disputable.
Further, even if the contract of employment is oral, your staff will have a certain set of employment rights granted to them by statutory law that cannot be reduced in any case. Otherwise, you might find yourself before an employment tribunal or a court. So it is pertinent that the rights and obligations are set out in an employment contract, so both you and your employee are aware of them.
For modern startups, oral employment contracts can be a cause of significant concern. Aside from the issues inherent in any oral contract, startups need strong protection around business secrets and confidential information that can be best achieved using a written contract of employment.
Statement of particular of employment
Additionally, the law dictates that every new staff member must be given a statement of particulars of employment (also known as a principal statement) before their employment begins.
This is to protect the employee by making them aware of certain terms of their employment.
However, a principal statement is not the same as an employment contract and it does not favour the employer. So the reason to use a written contract is to include terms within it that favour the employer and obtain the agreement of the employee to comply with included terms.
Additionally, if you use a written employment contract, you do not need to separately provide a principal statement as long as the contract covers all the same points required by the principal statement.
Which terms and provisions do startups need in their employment contracts?
As a starter, the employment contract needs to cover all information required to be in a principal statement. The information that must be provided includes:
- Employer name
- Employee name
- A job title or description
- Date of start of employment
- Amount and frequency of pay
- Hours of work
- Entitlement to holiday
- Place of work
- Collective agreements that affect employment
- If the employment is for a fixed term, or not permanent, when it is expected to end
- Probation period and its conditions
- Any additional benefits (such as lunch)
- Compulsory training, whether or not this is paid for by the employer
Some information that your employment contract needs to contain or be referenced includes:
- Notice periods
- Sick pay
- Disciplinary and grievance procedures
- Pension schemes
- Appeal procedure
Some important terms and provisions for modern startups
As a businessperson, you should avoid lengthy litigation at all costs as it can strain your business.
You can deter such situations from arising by setting out some important terms in your employment contract.
Restrictive covenants
As an entrepreneur, you will have spent countless hours developing your product or services and the customer base with the hope that one day you will reap the returns.
You do not want a former employee to solicit your customers, set up a new business in direct competition, or poach employees.
You may be able to prevent this by using certain restrictive covenants in the contract.
Non-compete clause
An employee’s value to an employer is generally based on their previous work experience. However, as an entrepreneur, you have a legitimate interest to protect your confidential information and trade secrets.
This provision, often used in contracts for senior employees, will provide recourse if your employee ever does enter into competition with you, whether that be their own business or working for a competitor.
However, a non-compete clause must be reasonable and should not break the anti-competition laws.
If there is ever an issue in this regard, it will be up to the court to determine whether the non-compete clause is reasonable or not. You should keep the following guidelines in mind:
- The clause should be necessary to protect your legitimate commercial interests and be in the greater public interest.
- There should be a time limit, which should be no longer than necessary.
- The clause should not be too wide to restrict the person from working in too wide a territory or industry.
Non-solicitation
This clause prevents the employee from approaching your customers in an attempt to win work from them.
Non-dealing
While being similar to non-solicitation, it gives added protection by requiring the employee to not deal with any of your customers who approach the employee on their own accord.
Provisions to protect your intellectual property
The current statutory law on damage to an employer’s intellectual property by an employee is inadequate. Therefore, this area needs to be comprehensively covered in the contract of employment.
By law, any intellectual property created by an employee during the course of employment belongs to the employer. However, some employees may not know this. Therefore, including this provision in the employment contract can serve as an important reminder to the employee.
Further, modern startups also need to protect their procedures and methodologies, which often get neglected. Therefore, the contract should restrict the employee from copying or transferring your intellectual property within documents.
Confidentiality clause
Your employee will likely be exposed to commercially sensitive information (such as trade secrets, databases, client information or lists, patents, and business know-how). If the employee discloses such information, it could potentially be used to damage your business.
As an entrepreneur, you need to ensure that the employee cannot disclose confidential information to any person, including your competitors. To achieve this goal, you need to put some measures in place.
For example, the contract of employment should contain a comprehensive definition of confidential information. Further, the confidentiality clause should strictly prohibit the employee from making copies or storing your confidential information in any form and at any place and from removing any confidential information from the business premises.
The confidentiality clause should also clearly state that the employee’s responsibility for maintaining confidentiality will continue even after the employment ends.
Summary
Getting your business to the point where you need to bring on employees is a huge milestone for all entrepreneurs.
For modern startups, when it comes to hiring staff, you need an employment contract that is strong in protecting your business interest.
Entrepreneurs can have the strong protection they need when hiring staff by using a written employment contract and by including some important restrictive covenants, a comprehensive confidentiality clause, and provisions to protect intellectual property in their employment contracts.
