Building employee relations

Contracts of employment provide certainty and are commonplace, even expected, in our professional lives. 

Although in the Cayman Islands there is no legal requirement for an employee to be provided with a contract of employment, it is recommended to have one in order to avoid complications at a later date. The Cayman Islands Labour Law requires employers to furnish each employee with a statement of working conditions within 10 days of commencing employment. Technically, a statement of conditions does not provide terms and conditions of a contract but will be evidence of implied terms of employment. 

Where there is no contract of employment, an employer or an employee, in a court or tribunal setting, will seek to rely on the statement of working conditions as evidence of what they believe the reality of the situation to be. What often happens in these circumstances is that a variety of evidence is introduced including letters and statements from someone who might have heard a relevant discussion. The outcome of course is anyone’s guess and will often be unsatisfactory.

A simple contract of employment will often overcome the evidential issues referred to above. In that regard, it is important that any controversial oral agreements be incorporated in the contract together with an entire agreement clause. The importance of this clause is that it limits the contract of employment to the terms and conditions set out within it whilst excluding all others that may have formed part of preliminary discussions but not included in the final cut. In short, it provides the parties with certainty. 

Often, employers wish to include other documents such as employee handbooks and company policies as part of the contract. It is important either within the entire agreement clause or elsewhere within the contract to specify whether the handbook or policies are contractual or not. Failure to do so may result in ambiguity and consequently may lead to disputes over whether the handbook or a particular policy has binding contractual effect. 

Where employers use a standard template contract for new recruits, it is essential to ensure that the precedent is kept up-to-date and relevant. There is little point in reproducing terms and conditions in contracts where those provisions no longer apply or are ambiguously drafted. Two examples of this are post-termination restrictions (or restrictive covenants) and variation clauses. 

Post-termination restrictions

Post-termination restrictions are often either poorly drafted or too wide in their ambit. At a professional level, post-termination restrictions are common. The mere inclusion of a post-termination restriction in a contract of employment does not necessarily mean that it will be enforceable. Upon challenge, the courts have shown a willingness to strike down any restriction that has the effect of being punitive on the employee rather than protective of the employer’s business. 

To avoid successful challenge, post-termination restrictions such as non-compete and non-solicit clauses must be drafted in such a way as to provide appropriate protection for the employer but not too wide so they become punitive on the employee and unenforceable. Drafting restrictive covenants requires a balance between these two competing requirements. Clauses restricting employment for an excessive period or covering a large geographical area will, most likely, be unenforceable. Of course, whether a particular clause will survive close scrutiny by the courts will depend on the individual circumstances of both employer and employee. 

The Cayman Islands are unique given their geographical size, population and business density, which means that the courts are likely to look at post-termination restrictions in a different light and ask different questions. Is it fair for a professional expatriate, who wants to make the Cayman Islands his or her home to be unable to work in their given profession for 12 months? Is it reasonable to enforce a restriction prohibiting a Caymanian from working in their chosen career for 12 months? Leaving aside the immigration issues, the differences between Cayman and many larger jurisdictions can be significant.

To date, the courts in the Cayman Islands have not had to deal with this issue but it is likely that if called upon to do so in the future, many of the currently drafted contracts of employment, insofar as they provide post-termination restrictions, may not survive. 

Variation clause

Another example of a clause that is often too broadly drafted is the variation clause. Traditionally, employers have had little success relying on clauses designed to unilaterally varying the terms of an employee’s contract of employment. The courts rarely accept such clauses as reasonable on the basis that they are often considered to be drafted in ambiguous terms. Consequently, variation clauses are rarely used in the Cayman Islands but may become more widespread following a recent case in England. The English case has opened the door so that it may now be a realistic option for employers to unilaterally vary a contract of employment subject to an appropriately drafted variation clause. What has now become clear is that any clause purportedly giving an employer the power to unilaterally vary the terms of a contract of employment must be unambiguous and focused.

The most obvious and still the best solution for any employer is to obtain the acceptance from employees.

Unfortunately, acceptance to a variation of the contract of employment is not always possible, particularly so in circumstances where the variation does not benefit the employee. In such cases a well drafted, unambiguous variation clause in the contract of employment, coupled with a good information and consultation process, may assist. Such a clause may not provide relief in all circumstances, depending upon which way the Cayman Islands courts may interpret the recent English decision, but it has the potential to ease the difficulty for employers when faced with the prospect of varying terms and conditions of employment. 

Immigration clause

Another important inclusion in a contract of employment is an immigration clause dealing with the termination of employment in the event that a work permit is refused. To avoid any unnecessary confusion, the contract should include a clause specifying that the contract of employment and the continuation thereof is at all times subject to a valid work permit being approved and/or renewed. 

Laws of the Cayman Islands

It may seem superfluous but the contract should also include a governing law and forum clause specifying that all disputes relating to the contract of the employment are governed by the laws of the Cayman Islands and that the parties submit to the jurisdiction of the Courts and Tribunals of the Cayman Islands. This clause is particularly important where the employer operates in several jurisdictions or where the employee is not Caymanian. The employer or employee may otherwise try to select a jurisdiction that is more favourable for any dispute between the parties, which could lead to lengthy and expensive satellite litigation about where the dispute should be determined. 

Conclusion

A well-drafted and current contract of employment has significant benefits for employers and employees alike. The contract of employment is often the first formal insight that potential employees have into the company they are considering engaging with. In that regard it is important, from the employer’s perspective, that the employee gains a favourable impression from the outset. Poorly drafted and outdated contracts do not provide such an impression and can lead to a key recruit, with more than one offer, going elsewhere.

The benefits of entering into a contract of employment are many but the most important benefit is that it should clearly define the employment relationship between the parties and provide an element of security and certainty. With this level of certainty, employers and employees can go about their daily business with the confidence of knowing that at least the first and major step of building a workable and harmonious relationship has been taken care of. The rest will hopefully take care of itself.

This publication is intended only to provide a summary of the subject mattered covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.

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Shaun Cockle

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