What is an employment contract?
A contract between an employer and an employee is a legally binding agreement, which could be a 'contract of employment' or a 'contract of service'. An employment contract can be established verbally, in writing through documents (like a job offer letter or emails), or through conduct when actions indicate an agreement, even if it hasn't been written down or spoken about.
Under the Employment Rights Act 1996, employees and workers have the right to a 'written statement of employment particulars,' which includes the main terms of employment such as pay and working hours. This document can also be referred to as an 'employment contract,' but legally, the employment contract encompasses more than just the written statement. Workers who started their job before 6 April 2020 do not have the right to a written statement.
An employment contract begins when the employee starts work, even if the employer has not provided the written statement or other parts of the employment contract in writing. Under UK employment law, the arrangement for paying someone in return for their work constitutes a contract of employment. Therefore, while you may not need to provide a written document, you and your employee are still legally bound by the terms of employment.
Is it a legal requirement to have an employment contract?
A contract between an employer and an employee is a legally binding agreement, which could be a 'contract of employment' or a 'contract of service'. An employment contract can be established verbally, in writing through documents (like a job offer letter or emails), or through conduct when actions indicate an agreement, even if it hasn't been written down or spoken about.
Under the Employment Rights Act 1996, employees and workers have the right to a 'written statement of employment particulars,' which includes the main terms of employment such as pay and working hours. This document can also be referred to as an 'employment contract,' but legally, the employment contract encompasses more than just the written statement. Workers who started their job before 6 April 2020 do not have the right to a written statement.
An employment contract begins when the employee starts work, even if the employer has not provided the written statement or other parts of the employment contract in writing. Under UK employment law, the arrangement for paying someone in return for their work constitutes a contract of employment. Therefore, while you may not need to provide a written document, you and your employee are still legally bound by the terms of employment:
- The names of both the company and the employee.
- The starting date of employment.
- The employee's job title, a description of their role and responsibilities.
- Pay details (including the amount agreed and frequency of payment).
- The employee's working hours (including evenings, nights, or overtime work).
- Holiday entitlement (number of days off, inclusion of Bank Holidays, holiday pay policy).
- Notice period (for both termination by employer and resignation by employee).
- Length of probation period.
- Job location (if multiple locations are involved, the amount of hybrid/remote working agreed).
- Details of any collective agreements (with employee representatives, such as trade unions).
On the first day of employment, the employer must also give the employee information about sick pay, maternity and paternity leave, and notice periods. The employer has the option to include this information in the principal statement or to provide it in a separate document. If provided separately, the document must be easily accessible to the employee or worker, such as being available on the employer’s intranet.
The benefits of a written contract of employment
Some employers mistakenly believe that not putting anything in writing offers more flexibility. However, this isn't true.
Without a written contract, the terms of employment can become unclear. Employees have rights, whether or not a contract is provided, but a written contract clarifies expectations and entitlements.
Here are some of the main benefits of a written contract of employment:
Clarity
A written contract clearly outlines the terms of employment, reducing the chance of disputes.
Dispute resolution
If a dispute arises, tribunals view the written contract or S.1 statement as strong evidence of agreed terms. If you don't have one, this can cause complications. Having a contract provides this strong evidence.
What happens if you don't give an employee a contract of employment?
In UK law, while you're not legally required to provide a written contract of employment, failing to do so can lead to some potential legal complications for employers. Below are some common risks that could happen if you don't give an employee a written contract.
Unclear terms and conditions
An employment contract is formed as soon as an employee accepts a job offer. The terms can be verbal, written or implied. But without a written contract, the implied terms and conditions may be less clear, leading to misunderstandings or disputes. Terms and conditions can become very difficult to prove if both sides are unclear on their meaning. Having a written contract ensures both parties understand their rights and obligations, reducing the risk of conflict.
Disputes
Without a clear, written contract, employees may dispute the terms of their employment, including job duties, salary and benefits. This can lead to employment tribunal claims, which can be costly and time-consuming to resolve.
Non-compliance with the law
Failing to provide the required written statement of employment particulars can result in penalties. Employees can bring a claim to an employment tribunal, which can award compensation to them. The best way to give a statement of particulars is in writing.
Business vulnerability
A written contract can include clauses that protect your business, such as confidentiality agreements, non-compete clauses, and intellectual property rights. Without these, your business could be vulnerable, and valuable business information could be leaked to your competition.
Statutory defaults
Without a contract, default legal provisions apply. For instance, an employee only needs to give a company at least one week’s notice after one month of employment if no other terms are specified.
Can an employee leave a job immediately if they have no contract?
Even if an employee doesn't have a written contract, they still cannot down tools and just leave a job immediately without notice. The employment relationship still exists based on the verbal or implied agreement between the employer and employee, and certain statutory notice periods apply.
If the employee has been employed for less than one month, there is no statutory requirement for notice. If the employee has been employed for one month or more, they are legally required to give at least one week's notice.
An employee who leaves suddenly without giving notice could be breaching their contract, even if the contract is not written. The employer could potentially claim damages equivalent to the cost of covering the employee’s duties during their notice period. However, if you don't have a written contract, making this type of claim could be more challenging. The employer may also have the right to withhold final pay if the employee leaves without notice, depending on the circumstances and the terms of any implied agreement.
It's always best practice for the employee to communicate their intention to leave as soon as possible and try to negotiate a mutually agreeable notice period with the employer. Even in the absence of a formal contract, it’s good practice for both parties to document the agreed notice period and any other relevant terms of departure.
Do you need to sign a contract of employment for it to be legally binding?
Once a new starter accepts your offer, the employment contract begins. If the contract is in writing, this makes it useful to refer back to if needed. However, what happens if an employee doesn't sign the contract? It's a common question, and the simple answer is that without a signature, neither party can change the document. Yet, even without a signature or written contract, any previous agreement still stands. If an employee starts their role, they've acknowledged and accepted your terms and conditions.
A contract of employment doesn't have to be signed to be valid. However, it's always wise to have everything documented for future reference. If an employee refuses to sign a new contract, they have the right to do so. You can discuss their concerns and try to find a resolution, but remember that without their signature on any changes, the agreement remains unchanged.
Speak to us today about employment contracts
Our experts at Neathouse Partners can review, edit and redraft your employment contract templates to ensure they are legally sound and tailored to the unique needs and culture of your business.
Get in touch by calling 0333 041 1094 today or use our contact form.
