Essential guide: Employment contracts and policies

An employer may wish to include in a contract, notice above the statutory minimum entitlements. It may wish to do so, for example, in relation to important employees who are difficult to replace quickly. As an alternative to giving an employee notice, an employer may wish to dismiss an employee immediately and pay him/her in lieu of working notice. Including this option in an employment contract can save money as an employer can limit the amount of the in lieu payment (basic salary only and exclude any bonus or benefits that may have otherwise fallen due).

An employee is entitled to a minimum of 28 days annual leave each leave year. This entitlement includes public holidays. However, it is customary for many employers to offer 28 days annual leave in addition to public holidays. It is unlawful to pay an employee in lieu of annual leave except where that employee’s employment has terminated. On dismissal, an employee is entitled to outstanding annual leave for that leave year. There are special rules which apply for the calculation and payment of holiday for part-time employees and employees on long-term sickness absence. Employers need to be careful to take account of these rules in their contracts and policies to avoid unlawful discrimination claims.

Employment policies are useful for managing employee expectations and providing guidance for managers in conducting an employer’s business. For example, an equal opportunities policy can set out the employer’s values to employees and help it defend a claim for unlawful discrimination. Another key policy is an IT/data protection policy as this can help an employer to monitor employee communications and process personal data without falling foul of legal restrictions.

Other policies such as in relation to travel and expenses may also help manage expectations and aid the smooth running of the employer’s business. It is important to have flexibility to review and update policies as needed. For this reason, it is advisable to include a clear statement in the policies that these are not intended to be contractual documents. Some employers store all of their policies in a single handbook or place them on their intranet.

For many businesses, employees are both an employer’s greatest asset and greatest threat, which is why contracts and policies are so important for protecting an employer’s business both during the employment relationship and after it comes to an end. They not only describe the benefits to which an employee is entitled, but can also be a tool for properly motivating and incentivising higher workforce productivity.

Nick Thomasis is a partner in Morgan Lewis’s Labour and Employment Practice, while Lee Hardingis is an associate in Morgan Lewis’s Employment Practice.

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