Guest comment: The rules of engagement

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Sean Dempsey, an associate in Lewis Silkin's employment and incentives department, explains what to watch out for when you're signing an employment contract.

Moving jobs in the City, whether on your own or as part of a team, means negotiating a new contract of employment. You need to be wise to the legal issues that could arise.

Get it in writing

A key point to check is whether the bonus wording in your new contract accurately reflects what you verbally agreed. If you're moving jobs part-way through the bonus year, you may be able to negotiate a 'guaranteed' bonus during your first year. This assures you a certain level of bonus regardless of what happens, and the employer cannot exercise its discretion in the matter.

Sounds very attractive - but be wary of relying on a verbal agreement for a guaranteed bonus. Contracts in the City sometimes fail to honour the employer's spoken commitment by stating, for example, that payment of the guaranteed bonus depends on performance, either of the employee and/or the company as a whole. If that is what the contract says, you will stand little chance if you later try to argue that something different was agreed orally.

Poisonous penalties

The contract may also contain a penalty clause, requiring you to repay any guaranteed bonus if you resign before a certain date. Again, this may be surreptitiously inserted without having been verbally agreed, so it is crucial to ensure the contractual wording accurately reflects what you were promised.

Restrictive covenants

Another issue to watch out for is that contracts in the financial sector normally contain clauses known as 'restrictive covenants', designed to limit what people can do after the employment relationship has ended. Indeed, there may be restrictions in your existing contract affecting your freedom to take up your new job.

The law allows employers to protect their business but recognises that employees should be free to exploit their skills, knowledge and experience. Restrictive covenants will only be enforceable if they're reasonably necessary to protect the employer's legitimate commercial interests. Even then, a court will not enforce a term if it is drafted too widely.

Time to terminate

Similarly, when negotiating a new contract, remember to think about the protection you may need if your new employer later decides to terminate it. The simplest precaution is to insist on a lengthy notice period (if this is negotiable). That means you'll have sufficient time to look for another job - or, more likely these days, enough money in lieu of notice to ensure you're not out of pocket prior to getting new work.

Bear in mind, however, that notice periods cut both ways. If you later decide to get a new job, a lengthy notice period could prevent you starting work at a time acceptable to your prospective new employer...

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