Why Employment Contracts Matter More Than You Think
Many small business owners treat employment contracts as a formality — something to get signed and filed away. This is a costly mistake.
A well-drafted employment contract protects both you and your employee. It sets clear expectations, reduces the risk of disputes, and gives you legal protection if things go wrong. A poorly drafted contract — or no contract at all — can leave you exposed to unfair dismissal claims, disputes over notice periods, and costly tribunal proceedings.
The Legal Minimum: Written Statement of Particulars
Since April 2020, all employees and workers in the UK are entitled to a written statement of particulars from day one of employment. This is a legal requirement under the Employment Rights Act 1996.
The statement must include:
- The employer's name and address
- The employee's name, job title, and start date
- Pay rate and how it is calculated
- Hours of work
- Holiday entitlement (including public holidays)
- Sick pay arrangements
- Notice periods
- Place of work
- Whether the employment is permanent or fixed-term
- Any collective agreements that affect the employment
- Pension arrangements
Failing to provide this statement is a breach of the Employment Rights Act. An employee can bring a claim to an employment tribunal, and you can face an award of two to four weeks' pay.
What Most SMEs Get Wrong
1. Probationary Period Clauses
Many employers include a probationary period but fail to specify what it actually means. A probationary period clause should clearly state:
- The length of the probationary period
- The reduced notice period during probation
- The process for extending the probationary period
- What happens at the end of a successful probation
Without this, you may find yourself unable to dismiss an underperforming employee during probation without following the full disciplinary process.
2. Confidentiality and IP Clauses
If your employees have access to commercially sensitive information or create intellectual property as part of their role, you need robust confidentiality and IP assignment clauses. Without them:
- An employee can take your client list to a competitor
- Intellectual property created by an employee may not automatically belong to you
- You have limited recourse if confidential information is leaked
3. Post-Termination Restrictions
Restrictive covenants — clauses that limit what an employee can do after leaving — are only enforceable if they are reasonable in scope and duration. Many SMEs either:
- Include no restrictions at all (leaving themselves exposed)
- Include overly broad restrictions that courts will strike out entirely
A well-drafted restrictive covenant should be tailored to the specific role and the legitimate business interests you are protecting.
4. Variation Clauses
Businesses change. Your employment contracts should include a clear process for varying terms and conditions. Without a variation clause, changing an employee's role, hours, or pay — even with good reason — can constitute a breach of contract.
5. Garden Leave Provisions
If you want the ability to place an employee on garden leave during their notice period (keeping them away from clients and colleagues while still paying them), you need an explicit garden leave clause. Without it, an employee on notice may be entitled to continue working — and potentially poaching your clients.
Practical Steps for SMEs
Audit your existing contracts. If you have employees on contracts drafted more than three years ago, they almost certainly need updating.
Use a template — but customise it. Generic templates are a starting point, not a solution. Every business has different needs, and a contract that works for a retail business may be entirely inadequate for a professional services firm.
Get legal review for key hires. For senior employees, directors, or those with access to sensitive information, a bespoke contract reviewed by a legal professional is worth the investment.
Keep records. Ensure signed copies of all employment contracts are stored securely and are easily accessible.
Lexl provides employment contract reviews and drafting for UK SMEs. Book a Clarity Session to discuss your specific needs.
