The importance of a well-drafted employment contract
At the outset, establishing an employment contract seems straightforward, but is not that simple. This is because the contract consists of a number of different elements that must be met if one actually wishes to speak of an employment contract. At the same time, a contract that is not intended by both parties as an employment contract can still be qualified as an employment contract.
An employment contract contains the agreements between the employee and the employer. This contract can be made in writing or verbally, but in order to be able to properly determine the rights and obligations, a written one is contractually wise.
An employment contract is a contract whereby one party (the employee) undertakes to perform work in the service of the other party (the employer) for pay during a certain period of time. This article contains three elements of the employment contract: work, pay and relationship of authority.
The work to be performed can be almost any activity, mental or physical. Rest times or waiting for customers are also seen as work.
It is not important that work is carried out during the entire term of the contract, but if the contract does not impose any obligation to work on the employee, it cannot by definition be an employment contract.
Pay is the remuneration payable by the employer to the employee for the stipulated and/or performed work. It is not necessary for the existence of an employment contract to determine what will be due as pay. However, it must be established that consideration will be provided.
Even if the parties have agreed that no payment would be due, the pay element can be brought into a contractual relationship by a collective labour agreement, a collective agreement declared universally binding or a government pay scheme.
In any case, the following may not be regarded as pay:
- reimbursements for costs incurred such as travel and accommodation costs or clothing allowances;
- benefits not stipulated by the employer, which are not in return for work and to which the employee is not automatically entitled, such as Christmas and New Year bonuses;
- reimbursements or benefits from third parties such as tips;
- statutory increase in pay as a penalty for late or incorrect payment thereof, damages, indemnifications and the like
Relationship of authority
The relationship of authority element indicates that the employee performs his work in subordination to the employer. The contracts to take on work and the contract to perform professional services lack this element.
The employee must perform his work in the context of his employment with the employer. He performs work under the supervision, authority and direction of the employer. The employer, therefore, runs the financial risk to the company.
In assessing this element, a judge will generally look at the individual’s independence and freedom, weighing up a multitude of factors. Examples given by the Supreme Court of these factors are:
- the freedom of the person who carries out the work with regard to the organisation of work;
- the nature of the reward;
- the extent to which the person who carries out the work bears entrepreneurial risk;
- continued payment for annual leave, sick days and days off;
- the extent to which other activities are performed in addition to the agreed activities
Much case law has been published on these three elements. The interpretation of these terms is therefore not always unambiguous and will have to be assessed according to the circumstances of the case. In order to ensure a well-formulated employment contract in which your rights and obligations are established, it is therefore always important to have an employment lawyer or lawyer look at your contract.
We at CompanyNL would be happy to put you in touch with an employment lawyer with experience in your sector.
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