There are different types of employment contract that can be used to reflect the specific nature of the employment relationship.
We outline the main types and when they can be used below.
Indefinite contracts
Indefinite contracts, also known as permanent contracts, are the most common type of employment contract.
They cover arrangements where an employee is employed for an indefinite length of time.
As these contracts can operate for a considerable length of time, employers should be aware of the need for flexibility within the contract so that it can be altered in accordance with changes in circumstances throughout the course of employment.
Temporary contracts
Temporary contracts can be used when an employee is not expected to be employed permanently, but it is not known exactly when the contract will end.
This type of contract is no longer very common, and we would generally advise against using it.
It is important to note that despite being described as “temporary”, these employees are entitled to the same employment rights as permanent employees.
For example, if they build up the required 2 years of continuous employment, they will be able to bring a claim for unfair dismissal or redundancy pay.
Fixed-term contracts
Fixed-term contracts differ from temporary contracts in that the termination date or a specific event which triggers termination is specified in the contract.
This means that the contract will end automatically, on the expiry date or event, without the need for either party to provide notice.
Expiry of the contract will not breach the contract, so neither party will be able to claim damages.
However, the expiry of a fixed-term contract amounts to dismissal in relation to unfair dismissal and redundancy.
This means an employee who has been employed under a fixed contract for 2 years or longer will be able to bring a claim for unfair dismissal if their contract is not continued or a redundancy pay claim if there is no longer work available.
If the employer terminates the contract early, this will be a breach of contract, and they will have to compensate the employee for their losses in respect of the remainder of the contract.
The courts take a protective approach towards employees, so it is essential that employers include in the contract an express clause permitting them to end the contract before its expiry if they want to exercise this power.
Even if the employer is contractually permitted to end the contract before the termination date, the employee will still be entitled to bring claims for unfair dismissal and redundancy pay.
Employees engaged on a fixed-term contract have the right to equal treatment with employees on permanent contracts.
This means they must be treated the same way as employees doing the same type of work on a permanent contract.
Rolling Fixed-Term contracts
A rolling contract is a specific type of fixed-term contract that self-renews on a set date.
For example, a 3-year rolling contract will create another 3-year contract instead of expiring on the set date.
For these contracts to be terminated without breach of contract, they must contain an express clause allowing either party to terminate by providing notice.
Part-time contracts
A contract is part-time if the employee is contracted to work fewer hours than a full-time employee of the Company.
This may apply where the performance of the duties does not require as many hours of work or where the individual has requested flexible working.
It is important to note that part-time employees and workers are protected by regulations which prevent them from being treated less favourably than full-time employees.
This means that part-time employees must be subject to the same terms and conditions as full-time employees, unless the employer can objectively justify any disparity of treatment.
Zero-hours contracts and casual worker agreements
The defining feature of these types of contracts is that the individual is not guaranteed specific hours of work and they will only receive payment in respect of the hours they work.
These agreements involve a great deal of flexibility, making them useful for employers who do not have a stable demand for work.
The distinction between a zero-hours contract and a casual worker agreement is sometimes blurred as the terms are often used interchangeably.
However, there are notable differences between the two:
Zero-hours contract
The employer does not guarantee the employee set hours or a fixed pattern of work.
However, in practice, the shifts are often communicated to employees in advance, and employees can be subject to discipline in relation to attendance.
Casual worker agreement
The employer is not obliged to provide work, and the worker is not under any obligation to accept work that is provided.
This type of worker will accrue holidays, but they will not be entitled to the same employment rights as a zero-hours employee, as technically they are not employed.
Continuity of Service
For certain statutory employment rights, such as unfair dismissal and statutory redundancy pay, employees must have a specified period of continuity of service.
Zero-hours employees will accrue continuity of service under their employment contract, even during periods when they are offered no work by the employer.
Whereas a casual worker will not accrue continuity of service as this type of arrangement is structured so that each job offered by the employer is a joint and severable assignment.
Unenforceability of exclusivity terms
Any exclusivity clause in a zero-hours contract that seeks to prevent the individual from working elsewhere or prevent them from carrying out other work without the express consent of the employer will not be enforceable.
As this type of contract is casual, with the employer not guaranteeing any hours of work, it would not be reasonable for the employer to restrict the individual’s outside interests.
An unintended consequence of exclusivity is control, which also calls into question the enforceability of other terms which involve a considerable degree of control such as restrictive covenants.
If a zero-hours contract contains exclusivity terms, it is essential that the employer does not subject an individual who breaches them to any detriment.
This is because the individual will be able to bring a claim.
If it is successful, the employer will have to pay them compensation at an amount that the tribunal considers just and equitable in the circumstances.
Similarly, if an individual is dismissed because they breached the exclusivity terms, the dismissal will be automatically unfair, and they may be able to bring a claim of unfair dismissal.
However, the unenforceability of exclusivity terms will not be considered when determining the individual’s employment status.
For example, if the contract contains an exclusivity clause, this will not prevent the individual from being a zero-hours employee.
Term-time only contracts
Term-time only contracts are used for employees who only work during school terms.
Therefore, this type of contract is frequently used in the education sector and it can be beneficial for employees with childcare responsibilities as they will not need to work during school holidays.
Despite only working during term time, these employees are employed for the entire year, and each year they work will contribute to their continuity of service.
The employment terms should clearly outline how the employee will be paid, e.g. if they are paid when they work, or if their pay is distributed across the year.
The contract should also clearly state when term-time employees can take their holiday, as often they may only be permitted to take holiday outside of term-time.
As this is a specific form of part-time working, term-time employees are entitled to the equivalent terms and conditions as a full-time employee in a similar role.
Annualised hours
This is a flexible type of employment contract, whereby the employee is simply contracted to work a specific number of hours a year.
Employers can afford themselves complete flexibility by requiring the employee to work their hours whenever suits the business.
However, in practice, the contract will usually set out most of the annualised hours as fixed or rostered with a small remainder reserved for the employer’s discretion.
To ensure certainty, the written statement of employment terms should clearly outline how the hours are organised as well as the procedures for annual leave, pay and sickness absence.
As the employment contract continues to operate when the employee is not working their set hours, they will continue to accrue annual leave throughout the year and each year will contribute to their continuity of service.
It is important for employers to bear in mind that if annualised hours are scheduled close together, the employee’s hours of work may exceed the 48-hour working week limit of the Working Time Regulations.
This is not a problem as an employee can opt out of the regulations, but the employer would need to obtain their express written consent to do this.
Job sharing
Job sharing applies where the duties of one job role are split and carried out collectively by two suitable employees.
The employment contracts of employees who job share will therefore be interdependent.
The contract should clearly set out important terms, such as how the duties are divided, the hours of work for each employee, sickness absence and holiday provisions.
It is essential that the contract establishes what will happen if the employment of one employee ends, as this can cause considerable disruption for the employer.
In this situation, the employer should make all efforts to retain the other employee, for example recruiting someone else or increasing the remaining employee’s hours to cover all duties, and their dismissal should be a last resort.
This is because the remaining employee may be able to bring claims of unfair dismissal or sex discrimination.
Secondment
A secondment agreement involves an employee being temporarily sent to work for another department of the same company, another company in the group or a third party.
This is a useful arrangement that can give the secondee the opportunity to develop new skills, and it can allow the host organisation to benefit from the work of an experienced employee without the demands of recruitment.
Under a secondment agreement, the secondee will not transfer employment and will continue to be employed by the employer for the entire duration.
So that it is clear to all parties that the secondee remains employed by the employer, the employer should preserve its employment powers in the secondment agreement and continue to exercise these powers throughout the secondment.
For example, the employer should keep control over the secondee’s pay, holiday and other benefits.
Inevitably, the host will need to be involved in some matters, such as discipline and grievance procedures, but ultimately responsibility should rest with the employer.
The secondment agreement should clearly specify important terms such as the secondee’s position and the nature of their work, the host policies and procedures they must obey and when the secondment will terminate.
As secondment does not amount to employment, a secondee is not entitled to a statutory notice period if the host seeks to end the agreement and, in most cases, they can be dismissed by immediately.
However, the statutory notice periods will apply to the secondee and their employer as their employment relationship is maintained.
If the employer or host is seeking to end the secondment before the termination date, they should do so cautiously to ensure that they do not breach the contract or the implied duty of mutual trust and confidence, as this could enable the secondee to bring a claim in constructive dismissal.
Apprenticeship contracts
Apprenticeship contracts are divided into two main categories, which are outlined below:
- Apprenticeship agreements under the Apprenticeships, Skills, Children and Learning Act 2009
- Traditional apprenticeship contracts
If the requirements of an apprenticeship agreement are not met, the agreement will automatically be considered a traditional apprenticeship contract.
This provides the apprentice with more protection than other employees and makes it very difficult for the employer to dismiss them.
Therefore, it is important that employers meet the statutory apprenticeship agreement requirements.
It is also important to note that it is an offence to use the term “apprenticeship” in relation to training that is not provided under a statutory apprenticeship, except where training is provided to employees under an employment contract.
Apprenticeship agreements under the 2009 Act
The 2009 Act sets out requirements which apprenticeship agreements must comply with.
The requirements under the Act for apprenticeship agreements in England and Wales are slightly different.
England
In England, apprenticeship frameworks are being phased out and replaced by approved apprenticeship standards for specific sectors and qualifications.
An approved apprenticeship agreement must:
- Provide for the individual to work as an apprentice in a sector which has an approved apprenticeship standard
- Provide for the individual to receive training to assist them in achieving the approved apprenticeship standard
- Satisfy any other conditions required under government regulations.
An approved apprenticeship agreement must specify the amount of time to be spent by the apprentice on “off-the-job” training during the apprenticeship, as well as the “practical period” during which the apprentice is expected to work for the employer, which must be at least 12 months.
Wales
Apprenticeship frameworks are being maintained in Wales and they are governed by legislation.
The main requirements of an apprenticeship agreement are:
- It must be in a “prescribed form” - This means it must include the basic employment terms that are contained in the written statement of particulars for any employment contract.
- It must specify the skill, trade or occupation which the apprentice is being trained for under the relevant apprenticeship framework
Traditional apprenticeships
Traditional apprenticeship contracts are akin to employment contracts, but the employment rights of an apprentice are more extensive.
Firstly, a greater restriction is placed upon the employer’s ability to dismiss an apprentice.
For example, the level of misconduct that is required to justify dismissing an apprentice is more serious than compared to a regular employee.
Also, it is nearly impossible for an apprentice to be made redundant due to the employer’s obligation to provide the apprentice with training.
Secondly, the implications for an employer who breaches the apprenticeship contract can be severe.
If an apprentice successfully claims breach of contract, they may be entitled to receive all the remuneration and benefits they were entitled to for the remainder of the apprenticeship.
They may also be entitled to receive compensation for the employer’s failure to provide training, which reflects the increase in salary they would have benefited from had they successfully completed the apprenticeship.
Employee-shareholder contracts
Employee-shareholder contracts now have very limited use, as the tax advantages for shares transferred under these contracts no longer apply and the government intends to abolish this type of contract altogether.
Employee-shareholder contracts involve the employer offering the employee fully paid-up shares in the company in exchange for them taking on employee-shareholder status and giving up some of their employment rights.
It is important to note that not all employees who hold shares in their employer’s company will be employee-shareholders, as this is a specific type of contract that must comply with a number of requirements.
As this contract involves the employee surrendering significant employment rights, including the right against unfair dismissal and the right to receive statutory redundancy pay, they must receive prior independent advice.
Before signing the contract, the employee must receive a written statement from the employer, outlining the nature of employee-shareholder status and their rights in relation to the shares they will be assigned.
The appeal of employee-shareholder status was that any profit made upon disposal of the relevant shares would not be subject to capital gains tax.
However, this tax exemption does not apply to new arrangements created on or after 1 December 2016.
Volunteers
Volunteers offer their time and work to the relevant organisation in exchange for no remuneration.
‘Voluntary workers’ who are engaged by charities and voluntary organisations are exempt from the national minimum wage.
Problems may arise if a volunteer seeks to argue that they have employee status and are engaged under an employment contract.
In this case, the tribunal would review the volunteer agreement in light of the main characteristics of an employment contract to establish their true employment status.
The biggest indicators of an employment relationship are mutuality of obligation and having a binding contract in place.
Mutuality of obligation would exist where a volunteer was required and not requested to work hours set by the organisation, and the organisation was obliged to provide the volunteer with work.
To make it clear that volunteers are not employees, organisations should use a volunteer agreement rather than a contract and include a statement that it is not legally binding.
The agreement should not contain the usual terms of an employment contract, such as holidays and sickness absence, and it should be clear that volunteers will be reimbursed for reasonable expenses and not paid in respect of their work.
