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Why You Should Read Your Employment Contract Before You Quit Your Job

After reading this:

So you're about to quit your job? Or maybe you're still thinking about it, weighing up the pros and cons about whether and when to go. Either way, one of the most important things you should do before you send a resignation letter or even verbally resign is to take a look at your employment contract. This document is vitally important because it tells you all about the terms and conditions relating to both your work and the way you eventually decide to leave your job.

The following section takes a look at a typical contract of employment and highlights some of the major issues that you'll need to be clued up on before you say your goodbyes.

Please note that this document is to be used as a guide only. If you have any legal questions about your employment contract, you should take advice from legal professionals.

What if I don't have a written contract of employment?
What's in an employment contract?

What if I don't have a written contract of employment?

Many people all over the world work without written employment contracts and there are many reasons for this including the nature of the work itself (casual, part-time), infrequency of hours, flexi-time and self-employment.

Even where there is no written employment contract, this does not mean that you and your employer do not have duties and responsibilities to each other. Often, a written employment contract is replaced by a company handbook which lists the terms and conditions of your time at work. In the absence of an employment contract, you should refer to the company handbook when considering resignation.

If however, you do not have either a written contract of employment or a company handbook, you will have to rely on a verbal agreement between you and your employer. Although no less valid than a written contract, verbal agreements are much more difficult to verify where there is a dispute.

For example, if you are resigning from your job, you may recall that when you were offered your job, you were told that your notice period would be 2 weeks. Your boss on the other hand, seems to remember that notice was 1 month. Who is right? Unless you have a witness who was a party to the conversation and can confirm that notice was indeed 2 weeks, you would probably have to negotiate a compromise with the boss.

And this unfortunately is the scenario that many people with only a verbal employment contract find themselves in. Because you have nothing in writing, you'll have to hope that your boss is an honest person, has a good memory and remembers that you're owed a week's holiday pay and generous commission!

Finally, if you do have a verbal agreement only but have been working for the same employer for over 2 months, you can insist on a written record of the most important terms of your employment. This will ensure that you know what regulations and procedures you have to follow in the event that you do decide to resign.

What's in an employment contract?

Most firms do offer written contracts of employment and / or company handbooks and these state all of the terms and conditions of your work. The areas of most interest when it's time to move on include the following:

Probationary Period

Many employers now insist on the successful completion of a probationary period before offering you a long-term position within the company. This shows your boss that you fit in with the company ethos, have shown an aptitude for fulfilling the functions of the job you were hired for and are able to form satisfactory relationships with your colleagues. Similarly, for you, it's a chance to assess that you like your job and are happy in the work environment.

Typically, a probationary period lasts between 1 and 3 months and requires you to work under more modified terms of employment than usual. For example, should you choose to leave the company (or for that matter, if the firm decides to fire you), your notice period will be reduced to say, two weeks, instead of the usual four. Other employers insist that you are not allowed your full holiday entitlement until this initial term has elapsed.

If you decide to leave the firm before the end of your probationary period, please read this section of your contract thoroughly to make sure that you comply with all of the relevant regulations. Read more about what your probation period may entail here .

Changes to Terms of Employment

After the satisfactory completion of your probationary period, the normal terms of your contract of employment will come into force. This is something to be expected and so you probably won't pay too much attention to it.

However, your contract may also include a provision allowing your employers to change the terms of your employment at any time, and sometimes with little or no notice to you.

Don't be too perturbed by this though. It really is a worst-case scenario if your boss changes the terms of your contract without informing you at some stage. The vast majority of employers are scrupulous and will provide you with details of any changes in writing. Remember to refer to these amended terms if you are considering resigning.

Holiday / Vacation Entitlement

At I-Resign.com, we are often sent questions about resigning and holiday entitlement and holiday pay. It seems that many people out there are unsure about whether they are allowed to take all of their remaining holiday within their notice period, whether they will be reimbursed if they have some days outstanding or indeed, if they will lose any days they've not been able to take at all.

Again, this is all dependent upon the terms of your employment contract. Your contract should state:

Although the wording may be different, your contract should cover these major points relating to holidays. If it doesn't or in the event of any confusion, you should consult with your boss or HR department about the exact meaning of any terms you don't understand.

Sickness

In May 2000, The Harvard Centre for Society and Health in Boston reported that stress at work is as damaging to women's health as smoking or a lack of exercise. Sickness at work in general is estimated to cost British companies up to £25 billion a year.

Its hardly surprising therefore that most contracts of employment contain strict clauses relating to illness and notification. For the most part, these provisions will relate to telling your boss if you're not coming to work, how to account for prolonged absences and under what circumstances you may be entitled to receive statutory sick pay (if this applies in your country).

There are times however, when you may find that you have to leave your job altogether as a result of illness. If this is the case, this section of your contract becomes very important. The contract may cover any procedures you need to follow and what, if any, financial support you may receive. Again, if there are any parts of the contract you do not understand, please consult either your boss or the company's HR department.

Maternity

You're pregnant! Congratulations! And unless you're planning to be a Super-Mum, you'll need to take some time off work to have the little one and recuperate from the exertion.

Your contract of employment should confirm exactly how much notice you have to give, how much time you'll be allowed off and whether (and how much) you'll be paid while you're on leave.

The agreement should also tell you whether you'll be allowed to come back to your old job and resume your normal responsibilities. Finally, it will also deal with the possibility of your not coming back to work at all. If you decide not to go back to work, there are certain to be some regulations to comply with including notifying your employer of this circumstance.

Retirement

Different countries of course have different ages for retirement. In the UK, the normal age of retirement for both men and women employees is 60.

There are unlikely to be any special regulations covering resigning to retire although again, we suggest you read your contract of employment to confirm this.

Notice

The big one! By far and away, notice is the subject that most of you write to us about and indeed, it can be a grey area full of loopholes, discretionary responsibilities and prone to differences in interpretation. And this applies even where there is a written contract of employment!

Before we examine some of the more ambiguous issues, a typical employment contract should refer to the following points:

Strictly speaking, you are normally expected to work through your notice before leaving the company. However, in many cases, either you or your employer will want to cut short the notice period so that you can leave more quickly.

From your standpoint, once you've given notice you may be so excited that you want to join your new company as quickly as possible. Alternatively, you may detect some resentment toward you and feel that it is better to complete the handover process immediately so that you can go.

Conversely, your employer may not see you as a team player any longer or in certain situations, feel that it may affect the morale of the remaining staff if you stay. In this scenario, you will soon be asked to leave the office more quickly.

Regarding salary, the general (although by no means universal) rule is that if you ask your employer if you can leave before your notice is up, you should not expect to get paid for the part of your notice you don't serve. It follows that where your employer asks you to expedite your departure, they would have to pay you for the full notice period. Remember though, that this is a general rule only and you will have to refer to your own contract to confirm this.

Notice and Holidays

Another potentially confusing aspect of notice is with regard to holidays. Let's imagine that your notice period is 4 weeks and that you've calculated that you have 5 working days (1 week) holiday to take before you leave the company. What should you do? Will you be forced to take that week's holiday in your notice period? If you don't take it, will you lose that holiday entitlement or will you get paid in lieu for the days you didn't manage to take?

Typically, if you have holidays left over when you hand in your notice, your employer can force you take your holiday in this time. You would not be paid any extra, after all, you've taken all your time off now and the holidays have been accounted for. If your boss asks you to take your holiday and you refuse, they may be able to withhold any money in lieu of holiday that you would have been entitled to.

If your boss does not force you to take your holiday allocation, you have 2 options. The first is to take your holiday (if allowed) as part of your notice period. A lot of people who are resigning book their holiday for the last few days of their notice period especially if they are planning to start their new job as soon as they've served their notice. The remaining holidays provide an effective break between your old and new employment.

Alternatively, if you don't want to take your holidays (or are not allowed to), you may receive a monetary payment in lieu of holiday.

Again, your employment contract should confirm exactly what the procedure is. If in doubt, ask your boss or your HR department for clarification.

Disciplinary and Grievance Procedures

Most of the time, if you've been a naughty boy / girl at work, you'll be subject to some sort of disciplinary procedure which in the first instance, will probably be a type of verbal warning. If however, you continue to break the company rules whether gratuitously or not, the comeback will also start to get more serious. A written warning may follow, then perhaps a suspension, a demotion and eventually, the ultimate sanction; you'll be fired.

Of course, you may decide that you want to resign from your job before that happens. But to ensure that you're not going to get into trouble in the first place, take a look at your employment contract to see what sort of behaviour is condoned and what is frowned upon.

What if you're the victim of someone's crass behaviour at work? And for that matter, what if you feel that you're always being overlooked for promotion, being badly treated by colleagues or have a dispute about pay or commission? Of course, you could resign and move to a better job but the alternative is to use the company's grievance procedure to air your views and hopefully find a solution. Your contract should state what this procedure is and how you can start the ball rolling.

Expenses

Not strictly to do with resigning, but your company should certainly pay you any outstanding legitimate expense claims that you have when you decide to leave your job. Your employment contract should contain a clause concerning expenses and what expenditure is classed as legitimate and what is not.

Intellectual Property

Most jobs will to some extent involve writing documents or creating written or other materials as part of the normal course of employment. For example, an accountant may write a report on the company whose accounts they are examining, a salesperson may write a direct marketing mailshot and a Internet designer may write a piece of code which allows a web site to take orders. Who owns this material commonly known as intellectual property?

Your contract of employment will be the first guide. Going back to the Internet designer above, the contract may state that any code written as part of building web sites for clients belongs to the employer since clearly, the designer could not hope to stop the web site functioning should he decide to leave the company and take his code with him. Similarly, most employment contracts will have clauses relating to who owns this property whether it be the designer, the employer or the client.

Each country also has its own laws relating to ownership of intellectual property which can serve as a secondary guide. For example, in England, the Patents Act is one of a number of statutes that govern this area. If you need any further information regarding intellectual property at work, please click on the following link:

Copyright, patents and design rights in employment

Restrictions

Many employers now insert clauses into employment contracts which govern the behaviour of staff once they've left the company. For example, when you resign from your job, your contract may state that you cannot go to work for a competitor for a set period afterward.

Other provisions may say that you cannot directly (or indirectly) canvass your old clients for business even if they approach you. And similarly, the contract may deny you from taking (or enticing) other employees of your company with you when you decide to leave work.

The question of whether these restrictions are enforceable or not depend on 2 things:

  1. The country you work in
  2. Whether the restriction clauses can be classed as "reasonable"

Different countries of course have different laws but in the United Kingdom, the restrictions must protect a legitimate business interest of your employer and be reasonable to be deemed to be enforceable.

Again, we strongly recommend that before resigning, and certainly before contacting clients telling them you're moving on, we recommend you read the relevant section of your contract of employment to deduce what you can and can't do.

Confidentiality

Even employees who do not have a written employment contract are under an implied duty to keep certain types of information learnt at the workplace confidential.

A written employment contract may go further and stipulate exactly the meaning of the term "confidentiality". For example, it may state that:

Breaking rules on confidentiality is no laughing matter and the potential consequences are enormous for the development of your career. Dependent upon which country you're in and its own native laws, you can be either civilly or criminally charged for breach of confidence. And even if no legal proceedings are necessary, if word gets out about your misdemeanours, future employers will be much more wary of giving you work. Remember too that you are unlikely to secure a good reference from your old boss.

Salary

Your employment contract (if not your company handbook) will normally tell you how much you earn on a weekly or monthly basis. It will probably also tell you when and how you get paid. For instance, many companies stipulate that your salary will be paid monthly in arrears on the last day of each working month.

Bear in mind then that if you are on a salary paid monthly in arrears and you're resigning from your job, you will not collect your last pay packet on your last day of work. As per your contract, you will be paid for that final month (perhaps your notice period), one month later.

You may be able to change the date of your final pay by consulting with your boss or HR department.

Bonus Payments

If you're lucky enough to be in a job where your company gives you bonus payments, what are you doing resigning?! Unfortunately, life is a little less rosy than this and if you have decided to leave work, the issue of bonus payments and calculating how much you are entitled to can often be a tricky affair.

Bonus payments are certainly one way for a firm to engender loyalty amongst its staff. For example, your employer may run a bonus scheme which is paid relating to the amount of profit the company made in the last financial year. Does this mean that you have to wait until the end of the year before leaving? Even if bonuses are paid out quarterly, should you wait until the end of the next quarter before handing in your notice?

The best way to answer these and other questions is in the first instance, to check your contract of employment. If you need further clarification, talk to your boss and / or HR department about the bonus payment policy.

Stock Options

As with bonus payments, employers issue stock options to their staff to try and tie employees into staying with the company for a set period of time. This is particularly true of younger companies dealing in products or ideas that have a high-risk factor attached to them. Stock options have recently been in the news a lot because they are used by a lot of Internet companies to hire (and keep) high calibre staff they would otherwise have had problems getting.

In simple terms, a stock option is a contract that gives an employee the right to buy or sell shares in the company at a set price within a certain amount of time. For example, upon starting employment with Company A, you may receive 2000 stock options. The stock options are each worth say £1. Nominally therefore, you have £2000 worth of shares in the firm.

However, you will not be able to trade or sell these options for a set period (usually 2 or 3 years) until the option to realise the value of those shares matures. And even then, you will still have to be working for the same company to do so.

On the up side, the stock options which were worth £2000 are now hopefully worth a lot more. If one share in the company is now worth £3, then the value of your shares is now £6000.

Your employment contract will tell you how long you need to have to stay with your employer to realise your options. If you are adamant that you want to resign, you may need to negotiate with your boss as to whether you can realise any of the value of your options.

Commission Payments

The final topic in our guide to your contract of employment is the fraught issue of commission. Most salespeople and business development staff are on some form of commission structure. This means that they are incentivised in that the more products / services they sell, the more money they will make over and above their basic salary.

Your employment contract may detail your initial commission structure however, the longer you are with the same company and the more successful you are, this structure is likely to change. In this case, you should have been informed of these changes in written form without necessitating a change of contract. Dig these proofs out because you'll need them!

What type of commission are you on?

Simple Commission

Commission can be paid on sales in a number of ways. The most obvious is to pay commission as a percentage of value of the product or service sold. So for example, if a vacuum cleaner salesman sells 10 vacuum cleaners for £150 each and is on a commission of 5%, then he will be entitled to £75.

If you are on a similar "percentage of sale" commission structure then calculating how much you are owed at the end of your employment should be relatively easy.

Accumulative Commission

Slightly more difficult is if you are on an "accumulator" commission package where you are paid say 3% for the first ten products / services sold in a set period and then a higher percentage for the next ten.

Pyramid Commission

Another form of accumulator commission is where for example, the manager of a sales force gets not only his / her own commission for items sold but also receives a share for the number of items sold by the rest of the team. Also known as "Pyramid commission", this is common in many companies and calculating the amount of commission one has earned can be difficult.

Percentage of Profit Commission

It get can even more tricky however if you are on a "percentage of profit" commission structure particularly if the profit in question is related to both profit on and individual project and on the company's profit overall. For example, an Account Manager within an Internet firm may be paid commission on any profit made from the building of a client web site. In other words, profit made from one individual project. They may also be promised payment on the whole company's performance over a year. Commission thus becomes more a question of trust using figures that you may not have immediate access to.

Whatever the case, when calculating commission, make sure that:

  1. You check your employment contract
  2. You find and refer to any new commission structures that you've been notified of but may not form part of your original contract
  3. In case of ambiguity or doubt, you speak to your boss or HR department
    
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