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5 things to consider when drafting an employment contract

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An employment contract is a legally binding agreement between two parties, the employer and the employee, and is designed to give both parties security and protection. It is usually made in writing.

The following is a checklist of the top five points to consider when negotiating the employment contract:

1. Compensation & Benefits

Remuneration is a key factor for employees but it is often the case that the package is not clearly set out or defined. Points to consider:

  • Is the salary broken up into a basic salary and allowances? If so, what is the break-up and is it set out clearly?
  • Is there a signing-on bonus for the employee especially if the employee would be losing alternative options and/or benefits from moving from his previous employer?
  • Is there a bonus entitlement? Is it discretionary? Is it payable quarterly or annually and what milestones is it dependent upon?
  • What benefits are afforded under the contract? For example, are you provided with medical coverage and does it cover your dependents? What about life insurance and critical illness cover?
  • Are you entitled to an annual ticket allowance to your home country?
  • Does the employer provide you with other benefits such as education allowances, housing grants etc?
  • Does the employer operate a pension scheme? Are you entitled to gratuity under the UAE regime and if so on what basis?
  • How many holidays do you have per year? How many days can you carry over into the next year?
  • Are national holidays inclusive or exclusive of your holiday entitlement?

2. Designation and Role

It is often the case that the role is not clearly defined within the employment contract. Therefore consider addressing the following questions:

  • What is the job title?
  • What responsibilities have been assigned to the employee?
  • Where is the employment located? Can the employer relocate the employee to a different jurisdiction and if so is the consent of the employee required?
  • Who is the employee’s supervisor/line manager?
  • Is the employee allowed to be involved in other activities (e.g. directorships on other Boards etc)

3. Term & Termination

This is a key clause of the employment contract and is most heavily relied upon when things go wrong. It is therefore important to consider the following:

  • Is there a probationary period? How long is it for? Can it be extended?
  • Is the employment for a fixed term and if so what are the renewal provisions?
  • What are the grounds upon which the employer can terminate the employee? What are the grounds for termination for cause?
  • What is the notice period contained within the employment contract?
  • Is the employee entitled to a reference letter? If so what should this articulate?
  • Can the employee claim unfair dismissal? What other rights (if any) does the employee have if they feel they have been terminated unlawfully?
  • When should the final settlement be paid? Are any penalties attributed to late payments?

4. Governing Law and Jurisdiction

The governing law and jurisdiction clause in any employment contract is vital as it determines where and under what law you can bring an action. Accordingly it is important to note the following:

  • How are disputes resolved? Is it by arbitration or through litigation?
  • Is there an option for mediation to resolve the dispute amicably?
  • Where must a claim be brought (ie what court has jurisdiction) in the event of a dispute?
  • What is the governing law?

5. Post-Restrictive Covenants

The employment contract can place various restrictions on employees post-termination and in some instances can keep the individual out of the market for a considerable period of time. Therefore it is important to consider the following:

  • Are there any limitations on employees working for a competitor?
  • Does the employment contract restrict employees from soliciting clients and/or employees?
  • What is the duration of such limitations?
  • Are there any geographical restrictions?
  • Does the contract require a duty of confidentiality?
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