Features of obligation contractual relationship between employers

Employment contract - Wikipedia

features of obligation contractual relationship between employers

Legal Features and Research from Who's Who Legal. In order to prevent employees from disclosing valuable know-how, customer contacts of the employment relationship with their previous employer for the contractually agreed term. under an obligation to serve the employee with a signed original of the agreement. There is also a relationship between an employee and employer called 'mutuality of obligation', often referred to in shorthand as 'MOO'. It is through the employment relationship, however defined, that reciprocal rights and obligations are created between the employee and the employer.

If you are investigated by HMRC they will consider all these issues when determining your IR35 status and they will ask you explain yourself if they find discrepancies. Use the free online IR35 Test to establish your status After more than fifteen years of IR35 case law and legal precedents, IR35 has become a highly complex area of employment and tax law - so you should always seek expert opinion.

After you have self-evaluated your status using our free online IR35 testyou can then consider if you need to hire the help of an IR35 legal expert to help resolve any issues. Contractors have a contract for services with their client or agency.

features of obligation contractual relationship between employers

A contract for services is a strictly business to business contract between two firms on a buyer and supplier basis.

There is no question of any employment relationship.

Employment contract

As directors of their own limited companies, contractors also have a range of duties, responsibilities and potential liabilities under company law, which employees do not have. If either party fails to fulfil their obligations under the terms of the contract, they are in breach of contract and can take legal action to remedy the situation.

Contractors who are aware of the full range of issues surrounding contracts of service and contracts for service are in a much better position to judge whether their employment status is affected by IR35, and can seek professional assistance accordingly.

  • Employment contract and employment relationship
  • IR35 Explained: ‘Contract of service’ and ‘contract for services’

How a specialist accountant can help you with IR35 The IR35 tax legislation, and ensuring it does not apply to you, is fundemantal to your contracting career. The majority of high street accountants will not understand the legislation, and will not be able to help you - which is why it is essential to choose an accounting firm that specialises in the contracting market.

See our 10 tips for choosing an accountant Your chosen accountant will be able to guide you through our 10 easy steps to setting up your company and getting started.

One of these steps will be to analyse your IR35 status and help ensure it does not apply to you. If you are just starting out and haven't yet chosen your accountant them please consider our chosen accounting partner who we recommend for providing specialist accounting services for contractors and who has expertise in IR35 matters. In most cases the threshold of the clause being invalid will not be reached, thus rendering a non-compete clause that does not fully meet the statutory requirements non-binding on the employee.

In this case the employee will be entitled to choose whether to abide by the agreement and refrain from engaging in competing activities in order to receive the compensation or otherwise to commence competing activities without being entitled to compensation.

The contractual agreement of an insufficient amount of compensation or the commitment to pay compensation only subject to a condition will render post-contractual non-compete clauses non-binding for the employee. If the legally acceptable maximum term of two years is exceeded, the agreement will be binding on both the employer and the employee for the two-year term only; thereafter the employee will be entitled to choose whether or not to continue to abide by the post-contractual restriction of competition.

Conditions for a waiver or suspension of post-contractual non-compete clauses Under German law the mutual obligations under a post-contractual non-compete clause may be revoked unilaterally by the employer or by the employee or by mutual agreement of the parties. Under section 75a HGB the employer is entitled to unilaterally waive any rights under a non-compete clause by means of a written declaration regarding the employee in the event that the employment relationship has not yet ended with legal effect.

As soon as the employee receives such waiver, he is no longer obliged to refrain from engaging in competing activities. However, the employer is still under the contractual obligation for a period of 12 months from receipt of such declaration to pay the relevant compensation. Both the employer and the employee also have a right to withdraw from the post-contractual non-compete clause unilaterally under certain conditions.

features of obligation contractual relationship between employers

Such right to withdrawal is available if either the employer or the employee is legally entitled to terminate the employment relationship for cause with immediate effect. In the absence of an accepted cause for an extraordinary termination with immediate effect, the unilateral withdrawal from a non-compete clause would be ineffective.

Revoking a post-contractual non-compete clause by means of a mutual agreement such as a termination agreement or a court settlement is deemed to be permitted before or even following the end of the employment relationship.


Although the scope of the common catch-all settlement clauses is regularly interpreted quite extensively by German labour courts, it is advisable to include explicit wording providing for the annulment of any rights and obligations under a post-contractual non-compete clause.

Differences in non-compete restrictions for managing directors and for board members Unlike the aforementioned requirements, which are to be met for post-contractual non-compete restrictions concluded with regular employees, the statutory regulations of sections 74 et seq HGB are not applicable to managing directors or to members of the management board.

However, comparable requirements must be met, which are generally based on the described statutory regulations originally relating to ordinary employees. However, the threshold for a post-contractual non-compete clause being invalid is set by unethical conduct and is therefore more difficult to exceed.

Furthermore, the payment of 50 per cent of the recent most regular total compensation is not required by statutory law for managing directors, but is merely recommended in cases of a comprehensive list of prohibited competing activities.


Therefore it is possible, unlike in the case of a comparable agreement concluded with an ordinary employee, to agree with legal effect compensation that does not take into account the variable remuneration but only the fixed salary.

In contrast to the statutory regulations of sections 74a HGB, which are applicable to ordinary employees and which allow for a post-contractual non-compete clause to be effective in part if some requirements are not met, the most significant difference is that such reduction of an unfair contractual term to its legally permitted core would not apply in the case of managing directors and board members.

Therefore it is important to include wording to the desired effect in a non-compete clause concluded with such person in order to prevent the agreement from being rendered invalid in whole, for instance, by way of a too extensive territorial scope or other minor clauses not observing the aforementioned balance. Finally, consequences also arise with regard to the wording of post-contractual non-compete clauses.