Onboarding a new employee can feel like a big and expensive commitment, so any opportunity to reduce costs throughout the process may seem tempting.
A desire to minimise initial expenses can often lead small business owners to search online for a template employment contract and hope for the best. Now, with the arrival of artificial intelligence, why not ask easily accessible tools like Open AI’s ChatGPT to draft an employment contract for you?
In this article, we’ll provide an employment solicitor’s breakdown of what ChatGPT suggested and look at the pros and cons of using artificial intelligence to write employment contracts for your business.
Building your employer – employee relationships on strong foundations and minimising your exposure to legal risks is vital to business success. Our expert employment solicitors can assist in reviewing or drafting contracts of employment, giving you peace of mind when growing your workforce.
Contents:
- The use case of ChatGPT creating your employment contract
- The ChatGPT employment contract
- The employment contract introduction
- Position and duties of the employee
- The employment term
- Salary and benefits
- Working hours
- Confidentiality and non-disclosure
- Intellectual property
- Terminating an employment contract
- Relying on ChatGPT
The use case of ChatGPT creating your employment contract
You might assume that lawyers would see no benefits in people using artificial intelligence but that is far from the case, as we’ll explain at the end of this article. It is certainly quick. Type your question and get the answer, or in our case, a draft contract of employment. There was no waiting round to speak to an employment lawyer, no chain of emails to answer, and no tricky questions about different scenarios. It was also cheap – free in fact.
Those are two massive appeals for any quick moving, cash strapped start-up. So just how good is this new tool, and how can businesses best leverage it to assist in legal matters?
To put ChatGPT to the test we asked it to write an employment contract for us, using the prompt ‘draft an employment contract for a UK business’. Let’s see how it got on.
The ChatGPT employment contract
Here is what ChatGPT produced for us:
This Employment Contract ("Contract") is entered into on this _____ day of __________, 20___, (the "Effective Date") between [Company Name], a company headquartered at [Company Address] (the "Company") and [Employee Name], with a residential address at [Employee Address] (the "Employee").
1. Position and Duties
1.1 The Company agrees to employ the Employee in the position of [Job Title] and the Employee accepts this position. The Employee shall perform the duties and responsibilities associated with the position as assigned by the Company.
2. Employment Term
2.1 This Contract shall be effective from the Effective Date and shall continue until terminated in accordance with the provisions set forth herein.
3. Compensation and Benefits
3.1 Salary: The Employee shall receive a salary of [Amount] per [week/month/year], payable in [Currency], subject to applicable deductions and withholdings, on a designated payday as determined by the Company.
3.2 Other Benefits: In addition to the base salary, the Employee shall be entitled to participate in any employee benefits programs offered by the Company, including health insurance, retirement plans, and other similar programs, subject to the terms and conditions of such programs.
4. Working Hours
4.1 The standard working week shall consist of [Number] hours, to be allocated in accordance with the Company's policies, which may require the Employee to work on weekends or public holidays if necessary.
5. Confidentiality and Non-Disclosure
5.1 The Employee acknowledges that during the course of employment, they may have access to confidential and proprietary information, including but not limited to trade secrets, customer information, financial data, and business strategies, whether orally or in writing. The Employee agrees to keep such information confidential both during and after the termination of employment.
6. Intellectual Property
6.1 Any intellectual property rights arising from the Employee's work or services performed during their employment shall be wholly owned by the Company. The Employee agrees to execute any further documentation necessary to confirm the Company's ownership of such intellectual property rights.
7. Termination
7.1 Termination for Cause: Either party may terminate this Contract for cause upon written notice if the other party commits a material breach of any provision contained herein. Termination for cause shall be effective immediately upon notice, without any further payment or compensation.
7.2 Termination without Cause: The Company reserves the right to terminate this Agreement without cause and notice. In such cases, the Employee shall be entitled to receive any unpaid salary or benefits up to the effective termination date.
8. Governing Law and Jurisdiction
8.1 This Contract shall be governed by and interpreted in accordance with the laws of [State/Country]. Any disputes arising under or in connection with this Contract shall be subject to the exclusive jurisdiction of the courts located in [City], [State/Country].
9. Entire Agreement
9.1 This Contract represents the entire agreement between the Company and the Employee, and supersedes any prior understanding or agreement, whether written or verbal, relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto execute this Employment Contract as of the Effective Date.
_____________________________
[Company Representative]
___________________________
[Employee]
The employment contract introduction
What ChatGPT has done well is provide a good introduction by clearly stating the title and effective date of the agreement, identifying the parties involved, including the employer's name and address, and the employee's name and address. This is all essential basic stuff but can be overlooked.
Position and duties of the employee
It is crucial to not only include a clause on the position and duties of an employee but to also clearly specify them. That’s because employment disputes can centre on whether an employee was asked to go beyond their job remit. For example, is it part of the sales manager’s remit to manage contract compliance or do they hand over all responsibility for the contract once they have got the new business in? The answer may depend on the size of the start-up and how the company is structured.
If your company wants to quickly quash a grievance or defeat an employment tribunal claim then including clear information on the employee’s duties is vital.
What the ChatGPT contract does not cover is where the employee will be based. That is important if you have more than one branch office and you expect the employee to travel around all your sites. It is also crucial to spell out whether the job is home-based or not. For example, in the tech sector, you may be able to work from home, but a particular role may need to be office based because part of the job description involves teamwork and mentoring junior colleagues.
The employment term
In most employment contracts employers like to see the inclusion of a probationary period so there is an agreed timeframe where the employee knows that their performance is under review to check that the employment is working out for both parties.
Salary and benefits
Every employee wants to know what they are going to get paid and the ChatGPT contract covers thatwell. However, the AI contract does not cover issues such as when pay will be reviewed and the review process, sick pay, maternity and paternity pay and allowances, bereavement time off, and all the other potential scenarios when an employee might expect a pay allowance.
These areas must be all addressed in the contract. If not, disputes may arise. For example, if the company refuses to pay anything other than statutory sick pay to the employee but the company pays another employee their full salary whilst they are absent from work. There may be good reasons for this, such as the importance of one employee to the business and the difficulties of replacing that particular member of staff. That’s why the employment contract needs to set out a particular employee’s rights to various allowances, including sick pay.
An employment solicitor will want to ask searching questions to make sure that the employment contract is fit for purpose. For example:
- The contract might say that the employee is entitled to 20 paid days of holiday leave per year but an employment lawyer will want to know if any caveats need to be added. For example, if you sell 90% of your stock in the winter is there a blanket ban on sales employees taking holiday during those busy months over than in extremis?
- The contract may say that sick pay will be paid for ten days but does the company have a policy on sick leave reporting that the employee must follow to qualify for sick pay? If so, the policy should be referenced in the employment contract
Working hours
In some firms, an employer will pay overtime rates if an employee works additional or unsocial hours and this should be included in the contract so the employee knows what to expect in recompense if their working week includes overtime.
Confidentiality and non-disclosure
In some sectors, the confidentiality and non-disclosure clause is a crucial part of the employment contract. Take for example the start-up fintech business or the sports agency firm with a client list that their competitors would kill for.
Whilst it is great that ChatGPT included a confidentiality clause the detail needs to be sector and business specific. If a confidentiality or non-compete or solicitation clause is too wide it will not carry weight with the court. If it is too limited it will not protect a business that has a lot to lose from an employee breaching confidentiality.
Lawyers may want to ask questions about what devices senior employees will be provided with and what access they will have to databases to ensure that confidential information is clearly defined in the non-disclosure clause. That makes the contract bespoke to the employer and as watertight as possible.
Intellectual property
IP protection is a massive issue for increasing numbers of businesses. As business lawyers, we get that start-ups are sometimes wary of asking for bespoke advice but it is important to weigh up the cost of the loss of IP and the price of complex high court litigation against the cost of getting your IP protected. Part of an effective IP strategy is effective employment contracts.
Many start-ups think that loss of IP will never happen to them – until it does. That isn’t lawyers being negative – just realistic. Employees, however committed or senior, move on but you don’t want them to do so with your intellectual property.
Terminating an employment contract
Terminating an employment contract is a two-way street. An employee may want to leave your employment because they have a job offer from a competitor. If they are a key member of staff, it may take months to recruit a replacement. Therefore, thought needs to be given to the notice period in the employment contract so it meets your business needs.
When writing employment contracts one size does not fit all as in some cases you may be happy to include a one-month notice period whilst in others there may be a business imperative for a six or twelve-month notice period when exiting a senior employee. Alternatively, if there is a risk of loss of time-sensitive confidential information you may want to include a provision to put the employee on garden leave during the notice period.
In the ChatGPT contract, there is a reference to termination of the contract for cause or without cause. In most UK employment contracts, there is a provision for dismissal without notice for gross misconduct. That’s important but you should also refer to what amounts to gross misconduct and your dismissal and grievance policies and any methods of alternate dispute resolution. A good employment contract should cut down the risk of an employee alleging that they have been unfairly dismissed and taking your business to the employment tribunal.
Sadly, it normally takes employers one messy grievance or tribunal claim for them to be fully on board with why employment lawyers want to ask pesky questions and drill down on the contract details.
Relying on ChatGPT
We found that ChatGPT gave us the starting point of a good employment contract – it just needed clauses expanding to be industry, sector, and business specific and to have extra clauses added that ChatGPT had not touched on.
In its current state of development relying on a contract drafted exclusively from ChatGPT would be very risky. That said, ChatGPT’s employment contract can be really useful for entrepreneurs to get them thinking about what should go into their employment contract. For example, what is their definition of confidential information and what IP rights do they need to protect?
In turn, this can help speed up the necessary conversations between business owners and their lawyers, reducing time and costs in producing fit for purpose employment contracts – the proper foundations for growing your workforce.
One word of caution for entrepreneurs, an employment contract is just one part of the equation. When you are starting to take on employees, or expanding into new areas, it is just as important to have a suite of employment policies in place covering the likes of grievance handling, anti-bullying, gross misconduct, and maternity policies. These are just a few examples of documents that go hand in hand with the employment contract to protect your business.
You may also be interested in:
- Key components to be included in a employment contract
- Can employment contracts protect intellectual property?
- Writing a staff handbook: What Should It Include?
- What is a fair dismissal for employers?
