Employment Terms – A View From Both Sides of the Pond

As businesses look to expand their operations globally, we are increasingly seeing HR leaders taking a strategic view on how they want to engage their workforce across different jurisdictions. There is a greater push from companies for consistency between the template terms on which employees are engaged in different countries. The reasons are clear — businesses are keen to ensure that employees are treated equitably regardless of their location, that similar business protection provisions and minimum standards are adopted in the countries where the business operates, and that any administrative issues that are caused by varying template forms being used in different jurisdictions are minimised. This approach has led some companies to favour uniformity over strict compliance with local requirements and practice, opting to roll out a standard contract across different locations with minimal edits. This article explores some of the potential pitfalls with this approach for companies with employees in the US and the UK.

Minimum Information Requirements

In the US, most employees are employed at will (i.e., their employment can be terminated for any reason or no reason, with or without notice, and with or without cause). Such employees usually enter into offer letters outlining their role and duties, remuneration, benefits, and conditions of employment but offering limited detail on other terms of employment.

Conversely, under English law, when or before employees commence their employment with an employer (regardless of seniority or length of service), they are entitled to receive a statement of particulars containing basic information prescribed under statute outlining their terms of employment. In order to comply with this obligation, companies need to take a view on commercial terms for UK employees, which in some instances may vary from the company’s approach in the US (namely, contractual notice periods and holiday entitlement).

Anticipating where differences in approach may emerge between jurisdictions will better prepare companies to prioritise key terms and consider creative ways to achieve similar (even if not entirely consistent) outcomes for employees in different jurisdictions. For example, where businesses offer predetermined severance packages to certain US employees on termination of employment, proposing a lengthier notice period in equivalent UK employee contracts may achieve a similar result (rather than doubling up and offering UK employees severance entitlements in addition to their notice entitlement).

There are some areas in which the US is paving the way for increased disclosure. Recent salary transparency requirements in New York, California, Washington, and other states (as summarized in our April and November 2022 articles on this matter) has led to employers being more open about salary ranges applicable to various job roles and postings — an approach not yet mandated by law in the UK. Whether companies intend to adopt a global approach to salary transparency remains to be seen, particularly given salary expectations for similar roles will likely differ between locations.

Notice Periods

Another area where practices diverge relates to notice periods. In the US, the nature of at-will employment means employees can generally be terminated with immediate effect without reason and without making a severance payment. By comparison, in the UK, employees are entitled to statutory notice, which increases with their period of service (and, usually upon acquiring two years’ service, UK employees obtain additional statutory protections that limit an employer’s ability to dismiss them without a fair reason or process). Further, it is common practice for UK employers to propose longer notice periods in employment contracts than required under statute.

While US companies looking to align their approach may favour proposing notice periods for UK employees that go no further than their statutory entitlements (as that option most closely aligns with the approach in the US), this should be seen as an opportunity for those employers to consider how notice periods can be used to the company’s advantage, particularly when competing in the local market. For instance, building out notice provisions to include summary dismissal carve-outs, an option of payment in lieu of notice, and a garden leave provision can provide employers with increased flexibility when managing employee departures. Further, when a UK employee resigns, the company will likely need to build in some time to transition their role and source an appropriate replacement (who may be subject to a lengthy notice period with their current employer). In these instances, adapting the approach for local practice will likely place the business in a stronger competitive position and allow it to better weather changes to its workforce.

Restrictive Covenants

An area of increased alignment is the approach to restrictive covenants. In both the UK and the US, we are seeing a general legislative push toward eliminating or reducing the period in which non-competes can be enforced in employment agreements (in particular for California, as summarised in our January 2024 article). While this has not yet been implemented in the UK (and currently, post-employment non-competes are fully banned in employment agreements only in certain states in the US, including California, North Dakota, Oklahoma, and Minnesota), the changing approach to restrictive covenants is a topic employers should be alive to. In addition, certain other restrictive covenants (e.g., nonsolicitation of employees for nonsupervisory employees) have come under further scrutiny in the US, indicating a more conservative approach may be taken to the enforceability of such covenants.

Given restrictive covenants form a key business protection, employers should carefully consider the rules of the applicable country and how it wishes to implement restrictive covenants across its workforce (particularly to ensure the restrictive covenants it proposes reflect employees’ roles and business needs). Particularly in the UK, the enforceability of covenants is assessed at the time the parties entered into the agreement, so taking a considered approach initially will pay dividends at a later stage should the company need to rely on the restrictions.

In addition, companies should consider whether they can rely on alternative routes to achieve the desired effect — namely, ensuring UK employees’ contracts include a garden leave provision (such provisions are generally unlikely to be subject to challenge by employees but are effective at keeping employees out of the market/from joining competitors) or, further and alternatively, including restrictive covenants as part of the terms of any equity granted to certain employees.

As businesses look ahead this year and consider refreshing or harmonising their employees’ terms, it is clear that employers who distinguish between key employment terms they will need to rely on and less crucial terms will be better placed to implement a consistent approach across their operations without losing the benefit of protections they may have under local law. Particularly for HR teams tasked with integrating employees’ terms following business acquisitions or ensuring senior executives in different jurisdictions are engaged on similar terms, carefully considering employees’ expectations against the backdrop of local market practice and maintaining strong business protection provisions that comply with local law will best safeguard the interests of the business.

Please contact any member of Goodwin’s Employment team either in the UK or the US if you would like support with employment matters in these jurisdictions.

 

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.