14 April 2015 - Four frequently made errors in employment contracts

Four frequently made errors in employment contracts

Many errors are made in employment contracts. In what follows, I will discuss four frequently made errors and I will make some suggestions for avoiding such errors and for strengthening the content of the employment contract.

Forgetting' a unilateral amendment clause

If the financial situation of a company is poor, employers often opt to dismiss individual employees or to restructure the company. Occasionally, amending salaries is considered. The case of V&D affirms once more that this is easier said than done, even where employment contracts contain a unilateral amendment clause. Fortunately, there are sufficient practical examples based on which changes to a bonus scheme or to fringe benefits (such as a lease scheme) could be implemented by applying a unilateral amendment clause. Include such a clause. You won’t lose anything by including it.

An error in the penalty clause 

Many employment contracts stipulate that where a confidentiality clause is breached, an employer may claim both a penalty and full compensation from an employee. The idea is, of course, that not every breach will have the same consequences (or financial consequences). And sometimes it may be difficult to prove the damage, in which case it is good to be able to fall back on a penalty. Do however ensure that the employment contract stipulates that the employer can claim the penalty or, instead, claim compensation. If it says that the employer may claim both, the penalty clause is null and void, which actually means that it does not apply. The correct wording of a penalty clause is not always used by employers even though it is of paramount importance to the actual application of the penalty clause.

Having holidays lapse if they are not taken

This may sound attractive, because it encourages employees to take their holidays. Unfortunately, this clause is not permitted. It should be noted that statutory days’ holiday not taken will, in principle, lapse 6 months after the end of the year in which they were accrued. This rule was introduced in early 2012. If you would like to have more certainty that  holidays will lapse, or at least want to be sure that holiday credits remain within bounds, stipulate that after consulting with the employee, the employer may determine a maximum (and limited) number of days’ holiday.

Failure to (sufficiently) substantiate a non-competition clause

A sparkling debut for this one, I have to say. As of 1 January 2015, a non-competition clause (and a non-solicitation clause, which in practice is regarded as a kind of non-competition clause) may only be included in an employment contract for a fixed period if the employer has a compelling business or service interest in it. That interest must be set out in the employment contract; a far from easy task that calls for a tailor-made solution. Make an exact inventory of which officers within the company should be bound by a non-competition clause and why. Try to formulate this in the greatest possible detail. Copy-pasting from a contract of a business relation will probably be of little use.Four frequently made errors and four ways to prevent them. I hope that they may be of use to you.