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Explanatory Notes
Senior Manager's Employment Contract
This Agreement written under English law provides part of the employment contract between a senior manager and a company forming part of a group of companies.. Where a senior manager is subsequently promoted to board director we advise that this contract be replaced by a fresh contract in the form of a Director's Service Agreement [see form E106]. Please note that there will often be other documents forming part of an employment contract: principally a staff handbook (which, amongst other matters, will deal with disciplinary and grievance procedures, the provision of a company car), Health and Safety information, voluntary opt-out from the requirements of the Working Time Regulations, job description, documents setting out the rules and entitlements due under any occupational pension scheme, bonus scheme and the details of any share option scheme. Specialist legal/ accountancy advice is essential before agreeing to the provision of an occupational pension scheme, a bonus scheme or share option scheme. This agreement, as is customary, does not set out in detail individual entitlements to a pension/participation in bonus/share option schemes. This agreement has been drafted so that it may be used together with the following ContractStore documents: Director's Service Agreement [E 106], Employee's Contract of Employment (full/part time) [E….], Staff Handbook [E 122], various Human Resources documents (including a voluntary opt-out from the Working Time Regulations) [E 121], email/internet usage policy [E 113] and a brief guide to the law relating to contracts of employment [Z 153]. However each document may be used on a 'stand-alone' basis provided that care is taken to ensure that there are no discrepancies between relevant documents. Where the company is not part of a group references to "Group Companies" in the agreement should be deleted. Text in italic script and within square brackets must be adapted to conform to the terms agreed between the company and the Manager. It is essential to seek the advice of a specialist employment lawyer before finalising this Agreement. Clause 1: DEFINITIONS Sets out some essential and standard definitions Clause 2: APPOINTMENT Formally records the appointment of the Manager, gives a job title (and specifies that his/her duties may include matters not included in a formal job description), and, on the part of the Manager, confirms that there are no impediments preventing him/her from taking up the position: specifically the Manager confirms that any criminal offences have been "spent" under the Rehabilitation of Offenders Act 1974 [basically under this act certain relatively minor offences need not be disclosed after a certain amount of time has elapsed]; he/she is not insolvent; he/she is entitled to work in the UK. [See also clause 25.] Clause 3: DURATION AND CONTINUOUS EMPLOYMENT This clause states the start date for the Agreement and, at clause 2.1, provides alternative wordings recording when the Manager's period of continuous employment commenced: if a Manager has been appointed from within the Company the first form of wording should be used and if the Manager was appointed from outside the Company the second form is appropriate. It is important that the parties agree the period of continuous employment as this will affect any entitlement to compensation for "Unfair Dismissal" (where 12 months continuous employment is essential) and redundancy (where 2 years continuous employment is required). [Note that there is no legal requirement for continuous employment in the case of race, sex, disability, sexual orientation discrimination, age discrimination and discrimination based upon religious faith/personal beliefs (or the absence of such faith/beliefs). An employee must, subject to limited exceptions, bring proceedings for compensation within 3 months of termination/an act of discrimination. Clause 3.3 provides for a retirement age of 65: it is generally unlawful to specify an earlier age in the light of current age discrimination law. At present employers are obliged to consider an employee's request to continue working past 65 but are not obliged to agree to such a request. Clause 4: DUTIES This clause provides that the Manager's duties will be as set out by the Company and not confined to the job description thus giving the Company flexibility. The Manager is expected to devote substantially all of his time to the interests of the Company (save in respect of illness, holiday entitlement, maternity/paternity/adoption leave, unpaid time off in respect of childcare/dependant relatives) and owes duties of trust and confidence (see also clause 6.1). Clause 4.3 sets out in detail a number of prohibitions affecting the Manager including: not competing with the Company and respecting the Company's trade secrets/confidential information (this is reiterated in greater detail at clause 12). Clause 4.5 sets out, in broad terms, restrictions on the Manager's ability to legally bind the Company. Clause 5: NORMAL HOURS This simply states that the Manager shall work as many hours as are required to fulfil his duties. The Working Time Regulations 1998 which, broadly speaking, limit an employee's hours to 48 hours per week do not apply to senior executives who are in a position to regulate the flow and pace of their work. Nonetheless it is prudent to request all employees (including senior managers) to sign a waiver of the 48 hours restriction set out in a document separate from the contract of employment. Clause 6: OTHER INTERESTS This clause reiterates that the Manager is to devote substantially all of his/her time to the interests of the Company and, amongst other matters, must not hold other jobs. Clause 7: PLACE OF WORK
This is drafted to give the Company flexibility as to any postings of the Manager within the UK. Clause 8: REMUNERATION
It is made clear that there is no automatic entitlement to a salary increase at an annual review. Clause 8.3 provides for the payment of a discretionary bonus scheme. Although the bonus is described as "discretionary" great care needs to be taken to avoid: (a) allegations that bonuses have been allocated on grounds that are unlawfully discriminatory (race, sex, disability, sexual orientation, age and religion/belief): the restriction of bonus payments to women who have been absent on maternity leave is a particular danger and if in doubt specialist legal advice should be taken; (b) giving informal assurances either at interview of afterwards that payment of a bonus can be "expected"; (c) allowing a "course of dealing" to become established over a number of years such that an employee may reasonably come to expect a bonus payment of a particular size etc. Clause 8.4 provides for the payment of an occupational pension. It is essential that any contractual obligations in respect of an individual are strictly in accordance with the rules of the occupational pension scheme. Specialist legal/actuarial advice must always be taken before setting up such a scheme to ensure both regulatory compliance and tax effectiveness. Clause 8.5 provides for the participation of the Manager in a share option scheme. If no such scheme exists this clause must be deleted. Again any assurances given to the Manager in respect of participation in a share option scheme must be strictly in accordance with the rules of such a scheme. Specialist legal advice must be sought before setting up a share option scheme. Clause 9: EXPENSES [AND COMPANY CAR] Clauses 9.1/9.2 set out in broad terms the obligations of the Manager to account for his expenses in accordance with company rules and to take care of any company credit card issued to him/her. Clause 9.3 (in square brackets) provides for the allocation of a company car and makes it clear that any increase in employees' income tax or NI contributions arising from the allocation of a company car are for the account of the Manager. Again it is prudent to take specialist accountancy advice before setting up a company car scheme to safeguard the Company's tax position. Provision is made for the payment of a non-pensionable cash alternative. This entire clause should be deleted if a company car is not to be offered. Clause10: HOLIDAYS The Manager's entitlement is set out at clause 10.1 with provision for allocation of additional days dependant upon length of service. An additional one day is specifically allocated in return for the Manager agreeing to the restrictive covenants in clause 16. The reason for this is to show legally binding reciprocity as between Company and Manager regarding the restrictive covenants. Please see however the notes under clause 16. Clause 10.2 makes it clear that holiday entitlement can only be carried through to a future holiday year with the Company's consent and that the Manager is not entitled to payment in lieu of holidays due but not taken (contrast the position in respect of accrued holiday entitlement at termination: clause 10.4). Care must be taken to ensure that this policy is applied consistently and in a non-discriminatory manner. Clause 10.3 in square brackets gives the Company the right to insist that holiday entitlement must be taken during a notice period. This is a fairly onerous provision from an employee's perspective and may be deleted. Clause 10.4 provides for payment in lieu of pro-rated holiday entitlement outstanding at termination (with a corresponding right for the Company to recover payment from the Manager in respect of any holidays taken in excess of that pro-rated entitlement). Clause11: INCAPACITY This clause sets out the Manager's obligations to inform the Company of any illness/complete self-certification forms/obtain medical certificates. The right to receive sick pay at clause 11.2 needs careful consideration: for how long and at what percentage rate of normal salary is sick pay due? Care needs to be taken to avoid liability under the Disability Discrimination Act 1995 (broadly where an employee suffers from a substantial long-term illness/incapacity an employer is under an obligation to consider making a "reasonable adjustment" to both its premises and working practices so as to accommodate the employee: "reasonableness" will depend upon practicality, the resources of the employer and the nature of the employee's job. It is always prudent to take specialist legal advice if in any doubt as to whether an employee may fall within the protections offered by that act).
Clause 12: CONFIDENTIAL INFORMATION Clause 12.1 sets out in broad terms the Company's right to protect its confidential information/trade secrets. Clause 12.2 provides a non-exhaustive list of examples of such confidential information. Clauses 12.4/12.5 set out limited exceptions (e.g. where disclosure is made as a result of legal/regulatory obligations or is protected under the Public Interest Disclosure Act 1998 [also known as "whistle-blowing" by an employee in respect of corporate wrong-doing where there is no private gain and no reasonable expectation that the Company will heed reported concerns]). Clause 13: INTELLECTUAL PROPERTY This clause, written from the perspective of the Company, provides that all intellectual property rights acquired by the Manager during and as a result of his/her employment shall automatically vest in the Company. Clause 14: STATEMENTS Note that at clause 14.2 the Manager is prohibited from holding him/herself out after termination as being connected with the Company unless the Company has given prior written approval. Clause 15: TERMINATION Legally effective termination may be on the grounds of: incapacity (i.e. inability to do the job), misconduct, redundancy or "some other substantial reason" (e.g. a breakdown in working relationships) provided always that the employer has acted fairly in both the procedural manner of dismissal and the assessment of the substantive reason for dismissal. Please note the qualifying time limits applicable in respect of an employee's rights to claim compensation set out under the notes applicable to clause 3. Clause 15.1 sets out those circumstances where the Company is entitled to summarily dismiss the Manager without payment in lieu of his/her contractual notice period: these circumstances may be broadly described as "gross misconduct". Clause 15.2 gives the Company the right to suspend the Manager on full pay pending an investigation into any alleged misconduct: it is important that this power is sparingly used and is not seen as a disciplinary sanction in itself. Dismissal of a senior manager should, as a rule, be undertaken only after having obtained specialist legal advice. Disciplinary proceedings must always be carried out in strict accordance with the relevant provisions of the Staff Handbook. Clause 15.4 deals with "garden leave": i.e. where an employee is serving his/her notice period at home and makes it clear that his contractual obligations apply as if he/she was working "normally". Clause 16: POST TERMINATION OBLIGATIONS Clause 16.1 provides protection to the Company in respect of any competing business of the Manager pursued after termination with definitions applicable to this clause set out at clause 16.4. Great care needs to be taken to ensure that there is a balance between the protection of the legitimate concerns of the Company and the right of the ex-Manager to pursue a career post-termination. There is a clear risk of a court striking out any such restrictions that are held to be unduly onerous.
It is essential that an employer both takes specialist legal advice and carefully considers, so far as is possible, what commercial interests it must protect before finalising such restrictive covenants. Please note that the restrictions set out here (and especially the provisions set out in square brackets) are suggestions only: there is no general "legally acceptable" guidance: what is reasonable and thus legally effective will depend upon the individual circumstances of both employer and employee. It is always sensible to set out the restrictions as discrete provisions (as at clause 16.1) so that if one or more restrictions are held to be legally ineffective the remainder are still binding (see the text at clause 16.2). Clause 16.3 makes it clear that the Manager must inform any future employer of any relevant restrictions before entering into a contract of employment. Clause 17: DEDUCTIONS This is a standard clause allowing the Company to recover from the Manager any sums due to it both during his employment and at termination. Clause 18: SALE OR RECONSTRUCTION OF THE COMPANY Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 where an employee is transferred as part of the sale of a business or part of a business to another employer he/she is entitled to transfer on broadly the same terms and conditions as he enjoyed immediately before the transfer (including limited rights in respect of occupational pension rights). This clause makes it clear that these rights do not apply where a transfer takes place simply because a company has undergone restructuring. Note however that the Manager may have a right to claim redundancy if he/she transfers under inferior conditions. Again it is prudent to take specialist legal advice prior to undertaking such a corporate restructuring.
Clause 19: DELIVERY OF DOCUMENTS AND PROPERTY This is a standard clause providing that on termination the Manager must return all Company property including documents and copies of documents. Clause 20: RESIGNATION AS
DIRECTOR/TRUSTEE Again a standard clause making it clear that on termination of his/her employment the Manager must automatically resign all positions held within the Company including directorships of group/subsidiary companies and, where applicable, trusteeship of a company pension scheme. CLAUSE 21: DISCIPLINARY AND GRIEVANCE PROCEDURES This clause confirms that the details of such procedures are set out in the Staff Handbook. Clause 22: DATA PROTECTION The primary purpose of this clause is to set out the reasons/justifications for the Company processing personal data of the Manager and specifies that such processing may take place outside the European Economic Area (defined as the countries of the European Union, Norway, Iceland and Liechtenstein). It is important that where processing takes place outside the EEA the Company has taken all reasonable steps to ensure that both the country where processing takes place and the individual processing agent have robust policies in place to protect the integrity and privacy of an employee's personal data. Clause 23: NOTICES This is a standard provision found in most contracts specifying the manner in which formal notices are to be given by the parties to the Agreement. Clause 24: WARRANTY The Manager confirms that there are no legal/regulatory impediments restricting his/her ability to enter into the Agreement. Clause 25: PRIOR AGREEMENTS Again this is a standard clause for most contracts making it clear that any prior arrangements/agreements relating to the employment of the Manager have been superseded by this Agreement.
Clause 26: CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 Unless specifically excluded/restricted this act allows any third party who can reasonably claim to benefit from the terms of a contract to enforce/amend the terms of that contract even though that third party was not a party to the contract. To eliminate the uncertainty that such rights would bring it is customary to either exclude the provisions of this act in their entirety or, as here, to carefully set out the specific rights that specified third parties (i.e. Group Companies) may enforce. If there are no Group Companies the clause should be re-worded to simply exclude all third parties from enforcing any rights. Clause 27: GOVERNING LAW AND JURISDICTION This clause states that the Agreement is subject to English law and that the courts and employment tribunals of England and Wales have exclusive jurisdiction to hear any claims arising from the Agreement. Clause 27.3 makes it clear that the Company is not prohibited from taking legal proceedings against the Manager where the Company has, in the past, chosen not to pursue its rights in similar circumstances. Annexure: JOB DESCRIPTION
This forms part of the contract of employment and records, as at the start of the Manager's employment, matters such as his/her grade, job title, reporting hierarchy, starting salary and principal responsibilities. Note that provision is made for the job description to be periodically reviewed/amended following consultation with the Manager.
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