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Article Written by Naylah Hamour

Employment & Dispute Resolution Partner with DWFM Beckman Solicitors

The biggest regret that I hear from clients seeking advice about employment disputes or terminations is that they didn’t seek advice before signing their contract and/or joining their employer.

No one would buy a house or consent to a medical procedure without first taking advice from the relevant professional or expert, but individuals routinely sign up to employment contracts without seeking any advice on them.  Most probably think that there is no need because there is no problem or dispute at that time.  Some may consider it but be reluctant to incur any costs at all when there is no dispute.  This is a false economy.

I often have to deal with the fall-out when things go wrong, so the key piece of advice I would give to individuals is to have their contract professionally reviewed before signing it and, if applicable, to take advice when they are still negotiating the terms of their new employment.

This is particularly important for employees who are resigning from one job in order to take up another, especially if they have been approached and headhunted out of their existing role.  They will often be leaving mid bonus year, potentially sacrificing valuable share options, losing their continuity of service and statutory protections, and sometimes losing out on imminent promotion opportunities.  These individuals are usually so excited and positive about the new opportunity for which they have been approached, that they accept all assurances given, sign up and start work without thinking about what will happen if the new position does not work out as expected.  The danger in this approach is:

  • It does not matter how good the new proposal is if your employment can be terminated on short notice with no settlement package. If the employee is giving up his or her security elsewhere then protection should be built into the new contract to reflect that.
  • Promises made by the new employer are irrelevant unless they are contained within an employment contract. Typically they are not included. At best, they may appear in the offer letter, but this is not sufficient.
  • The employee often relies upon promises of future reviews or assessments, bonus targets to be agreed, promotion prospects to be considered down the line. Unless these are sufficiently detailed and set out in writing, they are meaningless. Once the employee has joined they will be considered alongside their new peers and invariably will be told that there is a process to be followed and a queue to join.
  • Individuals do not wish to rock the boat too much before joining new employers. They should instead understand that their currency is at its highest when they are being pursued to join a new employer. This is their best opportunity to negotiate.
  • Recruitment budgets are typically higher than pay rise budgets, and therefore the prospects of success are greater if negotiating before joining rather than relying on a subsequent review.

Sign on bonuses are a particular source of problems. They are common for employees in the finance sector, and are often structured as forgivable loans.  The requirements for repayment are typically very broad and leave employees with little protection if their employment is terminated by the employer, even without cause.  Employees then face a further shock when they realise that they will usually have to repay the gross value of the loan, despite having only received a net sum.  These issues can all be mitigated by taking advice and ensuring the contractual wording is reviewed and properly drafted.

Restrictive covenants are also often a source of concern to individuals.  When changing employers, there are usually two sets of covenants to be considered, those that apply in the role from which the individual is resigning and those to be imposed in the new position.  Employees will need to take advice to understand the restrictions that apply to them in their current role, whether they are free to join their new employer, the extent of the restrictions, whether they are likely to be pursued by their old employer for breach of covenant, and the risks to them in that scenario. They will also need to carefully consider the new covenants to which they are being asked to commit, particularly bearing in mind that their new employment could easily be terminated within the first few months, leaving them without a job but with another set of restrictions to make the future search harder.

Employees will sometimes say that the new employer will not negotiate on its terms, and that therefore there is no purpose in seeking advice.  Again, this is not the best approach.  It is always important for an individual to fully understand the effect of the terms to which they will commit, particularly if they are leaving another position in order to do so.

What are the top tips to protect yourself when changing jobs?

  1. Make a list of everything in your current package.
  2. Make a list of everything that you will lose by moving on e.g. bonus, share options etc.
  3. Make a list of everything that you have been promised in the new role.
  4. Compare the lists and make sure you are being properly compensated for everything that you are leaving behind.
  5. Take professional advice to ensure that what you are expecting is actually reflected in your new contract.
  6. Allow your advisor to ensure that your contract otherwise protects you from the unfortunate possibility of an early departure.

If you wish to get in touch with Naylah with regard to an employment or litigation matter please contact her on 020 7408 8888 or email her on [email protected]