Your Employment Contracts Were Written for the Business You Used to Be. They’re Now a Liability for the Business You’ve Become.

Somewhere in the filing system of every growing business there is a contract template. It was drafted at formation, possibly by a solicitor, possibly by the founder using something they found online, and it was good enough at the time. It has been used, with minor adjustments, for every hire since. The business has grown from five people to fifty, or from fifty to five hundred. The structure has changed, the roles have changed, the commercial environment has changed entirely. The contract template has not.

This is not an administrative oversight. It is a compounding commercial liability that grows with every year it goes unaddressed, and the scenarios in which it detonates are precisely the ones where the business can least afford it: a senior departure, a restructure, an acquisition, or a tribunal claim.

The Restrictive Covenant That Protects Nothing

The restrictive covenants in most employment contracts are the clause the business relies on most and understands least. They are typically drafted broadly, because the instinct at drafting stage is to make them as comprehensive as possible. Non-compete for twelve months. Non-solicitation of any client the employee had contact with. Non-dealing with any client of the business. Confidentiality covering all information the employee encountered during their employment.

The problem is that breadth and enforceability are inversely correlated. A court assessing whether to grant an injunction to enforce a restrictive covenant applies a test of reasonableness: is the restriction no wider than necessary to protect the employer’s legitimate business interests? A twelve-month non-compete for a junior account manager is almost certainly unreasonable. A non-solicitation clause covering every client the employee ever had any contact with, including ones they emailed once three years ago, is vulnerable to challenge on the same grounds.

The result is that the business reaches the moment when it actually needs the restrictive covenant, when a senior commercial leader resigns and joins a direct competitor, and discovers that the covenant it has relied on for years is either unenforceable or so broad that enforcing it would require litigation with an uncertain outcome and a cost that exceeds the value of the protection.

Esbee’s HR services team reviews restrictive covenants as a standard part of contract audits, not to make them more aggressive, but to make them enforceable. A well-drafted restrictive covenant, tailored to the role, the seniority, and the genuine commercial interests at stake, is worth considerably more than a broad one that a court will set aside.

Contracts drafted at founding and never updated are governing a completely different organisation. The gaps are more expensive than the update.

The Bonus Clause That Means the Opposite of What You Think

Discretionary bonus clauses are among the most litigated terms in UK employment law, and the reason is a persistent gap between what employers believe the word “discretionary” means and what a court will interpret it to mean.

Most employers read a discretionary bonus clause as conferring absolute freedom: the company may, at its sole discretion, pay a bonus. The amount, timing, and criteria are entirely within the employer’s gift. This reading feels commercially logical. It is also legally incomplete.

Case law has established that the exercise of discretion must not be irrational, perverse, or made in bad faith. An employer that has paid a bonus consistently for several years, to all employees who met certain informal criteria, has created an expectation that a court may treat as a contractual obligation regardless of the discretionary language. An employer that withholds a bonus from an employee who is serving notice, or who has raised a grievance, or who is in a protected category, faces the additional risk that the withholding will be characterised as a detriment, potentially engaging discrimination or whistleblowing protections.

The businesses that handle bonus arrangements well are the ones that draft the clause with precision, apply it consistently, and document the basis for every bonus decision with enough specificity to survive judicial scrutiny. The ones that handle it badly are the ones that use the word “discretionary” as if it were a magic incantation that exempts them from fairness, consistency, and good faith. It is not, and the tribunal awards in cases where discretion has been exercised unreasonably are sufficient to concentrate the mind.

The Intellectual Property Clause That Does Not Cover What Matters

Standard employment contracts typically include an intellectual property assignment clause. The employee assigns to the employer all IP created in the course of their employment. This sounds comprehensive. In practice, it frequently fails to cover the IP that actually matters.

The default position under the Patents Act 1977 and the Copyright, Designs and Patents Act 1988 is that an employer owns IP created by an employee in the course of their normal duties. A contractual assignment clause supplements this by extending the scope beyond normal duties to anything created during employment, and by requiring the employee to cooperate with registration and enforcement.

The gap appears when the business has changed but the contract has not. A marketing executive hired to manage campaigns is now developing proprietary frameworks, training materials, and strategic methodologies. A software developer hired to maintain existing systems is now architecting new products. A commercial director hired to manage existing accounts is now developing new market propositions that represent significant commercial value. If the contract was drafted for the original role and the role has fundamentally changed, the question of what falls within the “course of employment” becomes genuinely contestable.

This matters most in the scenarios where IP value is crystallised: a sale, a funding round, or a licensing arrangement. The buyer’s or investor’s lawyers will examine the IP chain of title with the same rigour they apply to the financial accounts. A gap in the employment contract IP provisions creates a gap in the chain of title, and a gap in the chain of title creates either a price adjustment or a condition precedent that can delay or derail a transaction.

The Job Description Problem in Restructuring

The Employment Rights Act 1996 requires employers to provide employees with a written statement of particulars, including a description of the role or job title. Most businesses comply with this at the point of hire and then never update it.

When the business restructures, the gap between the contractual role description and the actual role becomes a material risk. Redundancy requires the employer to demonstrate that the role, not the person, has been eliminated or reduced. If the contractual role description describes a role that bears no resemblance to what the employee actually does, the employer’s position in a consultation process becomes immediately vulnerable. The employee can argue, with some force, that the role described in the contract still exists, that the role being eliminated is a different one, and that the redundancy is therefore not genuine.

This is not a theoretical risk. It is a routine challenge in tribunal proceedings, and it is one that is entirely preventable by maintaining employment contracts that reflect the reality of how people actually work. At Esbee, we treat the contract audit not as an HR admin task but as a commercial risk assessment, because the scenarios in which contract gaps materialise are the scenarios, acquisition, restructuring, senior departure, where the commercial stakes are highest.

The Garden Leave Clause That Does Not Work

Garden leave clauses allow the employer to require an employee to stay at home during their notice period while remaining employed. They serve a genuine commercial purpose: keeping a departing senior from accessing clients, systems, and colleagues during the transition period. But a garden leave clause only works if the contract also provides a notice period long enough to make it effective.

A senior commercial director with a three-month notice period and a six-month non-compete is, on paper, restricted for nine months. But if the contract does not include an express garden leave clause, the employer cannot compel the employee to stay at home during notice, they can only require them not to work for a competitor. And if the non-compete is challenged as unreasonable, the entire nine-month protection collapses. The three months of notice are spent in the office, with full access to clients and information, and the six-month non-compete is unenforceable.

The fix is not complex: align the notice period, the garden leave clause, and the restrictive covenants so that they work together as an integrated protection. But this requires drafting them together, reviewing them when roles change, and updating them when the commercial context shifts. It is, in other words, exactly the kind of maintenance that most businesses defer indefinitely because it feels like an HR task rather than a commercial one.

The Uncomfortable Conclusion

Employment contracts are the legal foundation of every employment relationship in the business. When they are current, specific, and well-drafted, they protect the employer in the scenarios that matter most. When they are outdated, generic, and unreviewed, they create risks that compound silently until the moment they are tested, at which point the cost of not maintaining them becomes immediately and painfully clear.

An HR MOT includes a systematic review of employment contracts and documentation as a core element, because the gaps in contracts are among the most common, most consequential, and most preventable risks that mid-market businesses carry. The cost of a comprehensive contract review is a fraction of the cost of a single failed restrictive covenant enforcement, a single lost tribunal claim on redundancy selection, or a single IP chain of title issue that delays a transaction.

The contracts were written for the business you used to be. The question is whether they are fit for the business you have become, and whether you are willing to find out now, on your own terms, or later, on someone else’s.

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If your employment contracts haven’t been reviewed since they were first drafted, or if you’re not sure what’s in them, talk to us. Contract and policy review is a core part of Esbee’s HR services, and a key element of every HR MOT we conduct.