You’ve taken all the risks so far and poured your time, money, and attention into your business…now it’s time to enlist some help to grow your venture.
Whilst it can be tempting to hire people on a casual basis first while they get used to you and your business, there are inherent risks in this which could jeopardise your future.
Employment law can be tricky to navigate, particularly when working out the status of someone working for you. In addition, without proper protection, you could be laying out your entire business for someone to leave and directly compete with you.
Before taking on your first employee, here are 6 things to consider:
1. Employment status
Before even advertising a role, you should understand the difference between employees, workers, and self-employed contractors. Each category has different rights, pay, and tax implications, and it can be a tricky area to navigate. Considering how much control you want to have over what someone does, how long you need them for, and how integrated they will be into your business will help you understand which type of arrangement will work best for your business.
2. How to draft a job advert
When it comes to drafting a job advert, you will have your own ideas about how you want to present your company and the opportunity. Whilst it can be fun to try and stand out from the crowd by using creative job titles, generally you should try to objectively check your wording and make sure you’re not risking excluding any sections of society or deterring people from applying.
Discrimination claims can be brought even where the individual is not employed. Examples of wording which could give rise to discrimination claims includes “recent graduates”, “mature lady”, “ambitious young people”.
3. Requirement for some employment details to be in writing
If you are taking someone on as an employee, by law you must set out certain terms within a written statement or contract of employment.
This includes the name of the employer and employee, date of employment, pay details, hours to be worked and location, holiday entitlement, job title or description, and details about disciplinary and grievance procedures. The minimum requirement is that the details as required in section 1 Employment Rights Act 1996 are set out in writing within the first two months of employment.
This is, however, the bare minimum and there are many things not covered by such a statement which you would expect to see in a contract of employment to ensure both sides are clear on their obligations.
It’s tempting, when you are starting out and don’t necessarily have spare funds to have a contract drawn up for you, to pull some clauses together from Google and hope for the best. However, as you will see with the points below, that could be putting your business at risk and be much more expensive in the long run.
It’s worth noting that the law is changing and from 6 April 2020 more information will have to be included and the statement must be given on or before employment starts.
4. Protecting your intellectual property and confidential information
One of your main considerations before hiring someone should be how you are going to protect the business you have built up. The smaller your operation is, the greater the likelihood that your first employee will be privy to confidential information such as pricing and margins, and have direct contact with key business contacts including suppliers, clients and customers.
Without proper protection, the worst case scenario is that an employee could divulge your confidential information and put your business at risk. In addition, you will want to ensure that any work done by the employee for the company which could give rise to inventions or intellectual property, remains your property and you have the right to use it even once they leave.
Therefore, it’s vital to ensure that at the outset you have clear contractual clauses which protect your confidential information and intellectual property. These are contractual terms which go further than the basis statement you are legally obliged to provide. In order for them to be binding, you need to ensure they are carefully drafted to fully protect your information.
5. What can you do if it doesn’t work out
Hiring your first employee can be a step into the unknown – what if the role you’ve envisaged actually doesn’t need filling right now, what if you need someone with certain skills you hadn’t anticipated, or what if you just don’t get along with the person you have hired. Understanding the law around terminating an employment contract is important. It is helpful to have a probationary period in the contract of employment so that there are shorter termination provisions in the first 3 or 6 months. Another thing to be aware of is that whilst straightforward unfair dismissal rights don’t kick in until 2 years’ employment, if you terminate someone’s employment for a potentially discriminatory reason, they can bring a claim at any time without any need for a specific length of service. So if things aren’t working out, it’s worth considering if there is any risk to your business if you decide to quickly end the relationship.
6. Restricting competition if the employee leaves
As explained in point 3 above, your first employee is likely to hold a wealth of knowledge about your business. If they choose to go to a competitor or set up on their own, this could mean they have a huge competitive advantage. If you take the time to put restrictions in the contract of employment in the first instance, you could avoid this risk. Such clauses will only be enforceable to the extent they protect your business interests and should be carefully drafted to ensure they will cover areas which the employee could pose a competitive risk.
For advice on employment contracts for start ups tailored to your business’ specific needs, get in touch with Farleys’ employment law team on 0845 287 0939 or email us here.
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