EMPLOYMENT CONTRACTS IN CYPRUS: DOES YOURS ACTUALLY PROTECT YOUR BUSINESS?

An employee resigns and a dispute arises over the final payment. A manager assumes that overtime is included in the salary, while the employee understands otherwise. A departing member of staff still has access to client files. In each case, the employer turns to the employment contract, only to find that it does not answer the problem.

In Cyprus, an employment contract does not operate in isolation. It sits within a statutory framework comprising, principally:

• the Transparent and Predictable Working Conditions Law of 2023 (Law 25(I)/2023);
• the Termination of Employment Law of 1967 (Law 24/1967);
• the Protection of Wages Law (Law 35(I)/2007); and
• the Contract Law, Cap. 149.

Under section 11(5) of Law 25(I)/2023, no term of an employment contract may be less favourable to the employee than the applicable legislation.

A contract that ignores this framework will not protect the employer. One drafted with it in mind can prevent most disputes before they arise. Below are five areas employers should examine.

1. Does the contract contain what the law requires?

Section 11(3) of Law 25(I)/2023 sets out the minimum information every employer must provide to its employees, including:

• The identity of the parties and the place of work,
• The job title or a description of the work,
• The start date and, for fixed-term contracts, the end date or expected duration,
• The duration and conditions of any probationary period,
• The remuneration, including the basic salary and any other components stated separately,
• The normal working day or week, any overtime arrangements and overtime pay, and
• The procedure and notice periods on termination.

Under section 12, the core information must be provided no later than the seventh calendar day from commencement, and the supplementary information within one month. Pursuant to Section 13, any changes must be notified in writing no later than the date on which they take effect

Failure to comply with Section 27 constitutes a criminal offence punishable by a fine of up to €5,500. Furthermore, under Section 25, the burden of proving that no breach occurred rests with the employer. A template copied from another business, or drafted under the law of another country, rarely meets these requirements on its own.

2. Is the bonus really discretionary?

There is no statutory obligation on private-sector employers to pay a 13th salary. Entitlement may arise from the individual contract, a collective agreement or established company practice. The label the parties attach to a payment is not decisive.

In Director of the Department of Labour Relations v Stavrou and another (Criminal Appeals 264/2018 and 265/2018, 3 July 2020), the facts were these:

• The employer paid approximately one month’s salary every Christmas.
• It did so from the first year of employment, without conditions.

The Supreme Court held that this payment constituted “salary” within the meaning of section 2 of Law 35(I)/2007. It was irrelevant that the employee had signed an acknowledgement describing the payment as a bonus. The employer and its director were convicted for non-payment of wages.

The contract should therefore state clearly:

• Whether any bonus is discretionary and, if not, the conditions on which it is earned,
• How commission is calculated and when it becomes payable,
• What happens to accrued or pending commission on termination, and
• Whether a 13th salary is provided.

Employers should also ensure that their practice is consistent with the wording. Regular, unconditional payments may become a contractual entitlement regardless of what the paperwork calls them.

3. Do the working hours and duties reflect reality?

A clause stating that “the employee will work as required” does not meet section 11(3) of Law 25(I)/2023. That section requires information on:

• the normal working day or week,
• overtime arrangements and their remuneration, and
• any shift arrangements.

Where the schedule is wholly or mostly unpredictable, the employer must specify:

• the guaranteed paid hours, and
• the reference hours and days within which the employee may be called to work.

Under section 17, the employee may refuse work assigned outside those hours and days without adverse consequences.

The contract must also match practice. A unilateral change to an essential term, such as hours, duties, pay or place of work, may entitle the employee to resign and claim compensation as if dismissed, under section 7(1) of Law 24/1967.

The case law on section 7(1) is as follows:

• A breach of a fundamental term of the employment contract by the employer falls within section 7(1) (Alouet Clothing v Athanasiou (1988) 1 CLR 626).
• The employer’s conduct must be such as to undermine the foundation of the employment relationship (Louis Tourist Agency Ltd v Elia (1992) 1 A.A.D. 98).
• In Minas v Cyprus Airways Public Ltd (Application No. 730/2005), the employee had 23 years’ service and resigned some three and a half to four months after a unilateral change to his terms. He was nonetheless found to have been constructively dismissed.

4. Are confidential information and client relationships protected?

The contract should address:

• The definition, handling and use of confidential information,
• The use of company systems and data, and
• The return of documents, devices and access credentials when employment ends.

Post-employment restrictions require particular care:

• Section 27(1) of the Contract Law, Cap. 149 renders an agreement void to the extent that it restrains a person from exercising a lawful profession, trade or business.
• The exceptions in section 27(2) concern the sale of goodwill and partnerships, not employment.
• Article 25 of the Constitution protects the right to exercise any profession.

The enforceability of post-employment non-compete clauses in employment contracts has not been definitively settled at appellate level. A broad restriction should not be assumed to be enforceable.

During employment, section 16 of Law 25(I)/2023 prevents an employer from prohibiting an employee from working for others outside the agreed working hours. A restriction is permitted only if set out in writing at the time of hiring on specific objective grounds. These grounds include the protection of business confidentiality and the avoidance of conflicts of interest.

In practice, precisely drafted confidentiality obligations usually protect a business better than a general ban on competition. They are supported by the Trade Secrets Law (Law 164(I)/2020).

5. Does the contract address the end of employment?

Law 24/1967 governs termination regardless of what the contract provides:

• The employer’s minimum notice increases with continuous service, from one week (26 to 51 weeks) to eight weeks (312 weeks or more), and must be given in writing as provided for in section 9,
• A longer contractual notice period prevails, while a shorter one is void as provided for in section 9,
• The employer may make a payment in lieu of notice as provided for in section 11, and
• After 26 weeks of continuous employment, a dismissal not based on one of the grounds in section 5 gives rise to compensation, and the employer bears the burden of proving a lawful reason as provided for in section 6.

A termination clause cannot override these provisions. What it can regulate is:

• Handover,
• the return of company property,
• the treatment of outstanding commission and other payments, and
• any notice period more generous than the statutory minimum.

Probationary periods also need attention. Under section 15 of Law 25(I)/2023, probation may not exceed six months, save for managerial staff of legal entities. Older templates providing for longer periods should be updated.

When should employment contracts be reviewed?

Hiring a new employee is the obvious moment. A review is also advisable when a business:

• Introduces bonus or commission arrangements,
• Changes working hours, shifts or place of work,
• Promotes staff into roles with access to sensitive information, or
• Continues to rely on contracts drafted before Law 25(I)/2023 came into force on 13 April 2023.

Conclusion

An employment contract is only as useful as its contents. In Cyprus, those contents are shaped as much by statute and case law as by the parties’ agreement. A signed template offers little protection if it:

• does not comply with Law 25(I)/2023;
• misdescribes payments; or
• bears no resemblance to how the business operates.

For employers, the key is to address remuneration, working time, confidentiality and termination clearly from the outset. The contract should then be kept aligned with practice as the business grows.

For more details or advice regarding Employment Law matters in Cyprus, contact Phoebus, Christos Clerides & Associates LLC at info@clerideslegal.com.