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Signing a new Employment Contract? Employment Solicitor offers some advice

By Principal Lawyer, Employment

Employment Solicitor Harriet Bowtell explains why you may want to think carefully before signing up to a new employment contract...........

An executive search firm, Egon Zehnder, recently undertook a global leadership survey of more than 800 executives. The survey looked at how well organisations meet the needs of leaders when changing roles.  57 per cent of senior executives believed it took them six months or more to reach full impact when they changed jobs. There is, therefore, a considerable period of uncertainty for both the new employee and the employer when each is considering whether things are working out.  

A high profile example of things going wrong is Kate Bostock, an experienced retail boss, lasting only 7 months as an executive director at online clothes shop Asos. She resigned saying that Asos “isn’t the right place for me” even though both parties presumably believed she was the right candidate when she started.      

Given the risk of things not working out, it’s important to seriously consider, not only the culture of the new organisation you are looking to join, but also the terms on which that new employment is offered to you. Think about what you will be giving up in your current role - it may be more than you realise. From a legal perspective, you may be giving up Unfair Dismissal protection if you have been there for at least a year or, if you started on or after 6 April 2012, at least 2 years. If you have 2 years’ service you are also giving up your right to a statutory Redundancy payment and possibly also a contractual redundancy payment if that applies.  

You may have generous maternity/paternity and sickness pay rights that it would take years to build up again or which may not be available in your new place of work. If you have unvested share options, or long term incentive awards, these will probably lapse if you resign and sometimes even vested awards lapse if you join a competitor. You may lose your right to a bonus in respect of the current financial year if it falls due during your notice period or after the end of employment. You may also have other benefits such as a contribution to your pension scheme, particularly if it’s a final salary scheme, private medical cover, permanent health insurance etc which can be very valuable. All of these add up. 

So it’s important you look beyond the salary on offer in the new role. If your new employment doesn’t offer these benefits, or compensate you for the loss of them (for example, in an increased salary or buy out of bonus arrangements), then that is part of the cost you need to factor in of leaving.

Looking then at your new contract, does it properly set out how they are going to compensate you for any share options, long term incentive plans and bonuses you may lose from your previous job? Presumably you are moving for a higher salary, but is it high enough? Women especially can be reticent in aiming high, being too concerned about creating a bad impression. However, depending on the nature of the role, many employers would expect a prospective employee to seek to negotiate their salary. If a bonus is on offer, are the terms contained in the contract? Is it sufficiently clear what you have to do to achieve a certain level of bonus? Your aim is to get as many of the terms buttoned down in the contract itself as you can which leaves less room for disputes at a later stage.  

If things don’t work out in the first couple of years, the length of notice your new employer has to give you to terminate the contract is crucial as this is likely to be your only protection upon dismissal. Ideally you would want at least 3 months’ notice and 6 months is preferable if you are in a senior position.  Watch out for a shorter notice period being given during a probationary period and try to resist this. However, there are some professions, such as traders, where a long notice period may not be an advantage because they do not want the employer to be able to put them on garden leave for a long period.      

Does your contract, or the handbook, contain any restrictions on what you can do after your employment ends? For example, a restriction for a certain number of months on you soliciting and/or dealing with clients, soliciting employees or competing with the employer. You may wish to take advice to ensure that you are clear on what you are signing up to. The consequences of breaching such restrictions can be dire and provided that the employer does not breach your contract, the restrictions will remain valid, even if employment is terminated after only a couple of months. You may be leaving for a higher salary, but if you can’t compete for 6 months after you leave and that means you can’t earn any income during that time, that new offer can suddenly look a lot less attractive.

Whilst moving jobs can be an exciting time, with a lot to look forward to, there can also be a lot to lose. 

Look before you leap. 

By Employment Solicitor Harriet Bowtell.