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Introduction to this document

Third party rights clause

Third party rights potentially enable someone who isn’t a party to the employment contract to directly enforce a term of that contract against you, but not against your employee. If you don’t want to risk conferring rights on third parties such as an employee’s spouse or family members, use our clause to exclude the operation of the legislation.

Relevant legislation

The Contracts (Rights of Third Parties) Act 1999 allows a third party, i.e. someone who isn’t a party to the employment contract, in some circumstances to directly enforce a term of that employment contract against you as the employer. This may happen if either: (a) the contract expressly provides that they have the right to do so; or (b) the term purports to confer a benefit on them (unless, on a proper construction of the contract, it’s clear that the parties didn’t intend the term to be enforceable by the third party). Conversely, the Act expressly states that it confers no rights on a third party, e.g. an associated or group company, to enforce any term of an employment contract against an employee (or to enforce any term of a worker’s contract against a worker). So, the Act only works one way when it comes to employment contracts - contractual promises that you make may be enforceable against you by a third party, but the employee’s promises in an employment contract can’t be enforced by a third party against them. The Act applies to all contracts entered into on or after 11 May 2000, with a few specific exceptions, although it’s subject to any contrary intention expressed in the contract, i.e. you can use express wording to completely exclude the operation of the Act. Separate provisions apply in Scotland under the Contract (Third Party Rights) (Scotland) Act 2017, which came fully into force on 26 February 2018.

Excluded rights

It’s therefore often advisable to expressly exclude the operation of the Act in the employment contract if you don’t want to risk conferring third party rights, which is exactly what our Third Party Rights Clause does. It makes clear that the employment contract doesn’t give rise to any rights under the Act to enforce any of its terms and that a person who isn’t a party to the contract, i.e. who isn’t the employee or employer, has no right to enforce any of its terms. This will negate the contractual intention necessary to create an enforceable right under the Act. If you use this clause, do check first though that no third party is meant to directly benefit from any right contained in the employment contract. This type of clause is known as a “boilerplate” clause. It’s designed to achieve certainty and will prevent later arguments that any employment terms which might appear to benefit a third party mentioned in the contract create enforceable rights, e.g. terms that would entitle the employee and, say, their third party “spouse” or family members” to receive certain contractual benefits, such as medical insurance coverage, gym membership or relocation expenses.