What Employers Need To Know About Contracts Of Employment
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Contracts of employment are legally binding agreements between employers and employees. A contract of employment does not necessarily need to be written in order to be valid, but it is generally best practice if they are.
Like many other types of contract that parties may enter into contracts of employment are governed by contract law, which means there must be:
- An offer of employment;
- Acceptance of that offer by the employee;
- Consideration between the employer and employee, i.e. the employee works and the employer pays his wages in return;
Intention to create a legally binding agreement.
Employers and employees are bound by the terms and conditions of a contract until it comes to an end, or until the terms are changed.
Contracts of employment usually consist of both expressed and implied terms.
Those which are clearly stated in writing or verbally. Express terms are not limited to written employment contracts, but can also be included in other documents as well, such as the employee handbook. The terms must meet any statutory requirements, such as the right to daily rest breaks and paid holiday entitlements.
These are terms that are not necessarily written into the contract itself, but may be incorporated into contracts of employment because:
- There is a collective agreement in place with a trade union recognised by the employer;
- There is a workplace agreement in place;
- They are required by law;
- They are terms so obvious; they are assumed to have been agreed;
- The term is needed to make the contract to work properly, known as business efficacy.
Written Statement Of Particulars
In order to comply with statutory requirements, as laid out in section 1 of the Employment Rights Act 1993, an employer must provide a written statement of employment particulars if the employee is employed for one month or more.
The statement must detail the basic terms of employment, such as when the employee starting work, their salary and a brief job description.
An employee must receive a written statement of particulars within 2 months of starting work. A full contract of employment will still be necessary as the written particulars will not be as extensive as the contract of employment.
Breaching The Contract Of Employment
Either an employer or an employee can breach the terms and conditions of the contract. A breach occurs when either party does not adhere to their obligations under the contract.
If an employee feels you have breached your obligations as an employer under the contract of employment, then the employee in question may be entitled to claim compensation.
Resources to help your business
Free Employment Law & HR Manual
What Should Contracts Of Employment Contain?
A comprehensive contract of employment will provide an employee with all the relevant terms and conditions that govern their relationship with their employer.
By including all relevant terms and conditions, an employee will know exactly what is expected of them. Section 1 of the Employment Rights Act 1996 states that the Statement of Main Terms and Conditions should include:
- Names and addresses of the parties;
- The Company’s details and the employee’s details;
- Start Date;
- It is also important to specify whether or not any period of continuous employment counts towards this employment. A period of continuous employment with another employer will normally only be recognised in a TUPE situation.
- Job Title And Description;
- This normally follows on from the job title and description that were specified in any advertisements during the recruitment process. The job description can be attached separately and referred to in the document, or it can be fully detailed in the contract itself.
- Place Of Work;
- Specifies where the employee will work, but also gives you as an employer the flexibility to specify if this location is likely to change in the future, giving a greater degree of flexibility.
- Hours Of Work;
- The hours of work must be clearly specified, but there may be a provision for the employee to work more hours based on the needs of the business. It is important to note however that the working hours cannot exceed 48 hours per week under the Working Time Regulations unless an employee has voluntarily signed an opt-out agreement.
- Probationary Period;
- Some employers specify a probationary period, to give them time to ascertain how an employee performs in the first few months of their employment. Probationary periods normally last between 3-6 months in duration, but they can be extended at the employer’s discretion if they feel the employee needs more time to settle into the role.
- The contract should detail the employee’s gross salary before any deductions, and stipulate when payment should be made.
- This clause will detail the circumstances where an employer can make deductions from an employee’s salary.
- This clause should detail the pension scheme in place. It should detail when (if they have not already) the employer will be eligible to join an auto-enrolment scheme.
- This will detail when the holiday year runs from, and how many days an employee is entitled to take. The statutory minimum days that an employee can have 28 days, for employees who work part-time, this will be pro-rata. The holiday clause should also detail whether public holidays and bank holidays are included or excluded in this. The contract will also stipulate whether or not the employee is entitled to carry any days over to the next holiday year.
- The employee’s entitlement to sick pay will be detailed in the contract. Some employers choose to pay only Statutory Sick Pay (SSP), whereas others may decide to pay contractual sick pay.
- The contract should provide for the notice that the employer and employee have to give to terminate the contract. It should also provide that any conduct performed by that constitutes gross misconduct, will allow the employer to terminate the employee’s employment without notice.
- Collective Agreements
- A contract may also stipulate if an employer has an agreement in place with the employee’s representatives, whether it be a trade union or a staff association, and if this agreement affects the terms and conditions of their employment.
- DBS Check
- Some employers, depending on the nature of the work, may require employees to have a Disclosure Barring Check depending upon the nature of the work that is to be done. This clause may also give the employer the right to terminate the contract of immediate effect should an employee’s disclosure come back not satisfactory.
- Restrictive Covenants
- Restrictive covenants are normally only required for more senior employees. The clauses are designed to prevent employees poaching any staff or clients as well as any important information or documents that they had access to during the course of their employment. The clauses may also stop employees from going to work for a competitor after their employment has ended.
- This simply confirms that the correct jurisdiction for the contract is the courts of England and Wales.
Should I Put Anything Else In The Contract?
While you will be legally compliant if your contracts contain the information above, you should also consider whether there are other things that you need to put into the Contract.
Not only to cover any specific requirements of your industry (for example, the requirement to have a valid DBS check) but also to protect your business if the employee leaves (for example, confidentiality and post-termination restrictions).
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Why Is Having A Written Contracts of Employment So Important?
Written contracts provide both employers and employees with a certain level of protection.
A written contract will provide conclusive certainty as to what the terms and conditions of employment are. While a section 1 statement is compliant in law, a contract will go further and provide additional terms that a statutory statement cannot.
Many employers may want to add additional terms to the contracts, such as restrictive covenants or the need for an employee to have a DBS disclosure.
Importantly, an employee may also want a full written contract to provide them with peace of mind and security. It could also be that they have negotiated advantageous terms, and they want to ensure these terms are in the contract.
A well-drafted contract of employment means that both parties know where they stand to avoid disputes further on down the line.
If an employer fails to provide you with a section 1 statement or a contract of employment, then the employee can make an application to the Employment Tribunal who will then determine what the terms and conditions are, which can be very costly.
Do Contracts Of Employment Have To Be Signed?
Contracts of employment do not need to signed to be valid.
A contract of employment can be a verbal agreement. Therefore no signature is required.
If you do only have a verbal contract of employment, as an employer, you will still need to provide employees with a written statement of employment particulars within 2 months of them starting work with you.
There is no statutory obligation which dictates that the written statement of particulars or the contract of employment must be signed – once an employee has accepted a job offer and they start work, there is a legally binding contract between employer and employee.
If The Employee Doesn't Sign The Contract...
The fact that an employee has not signed a contract of employment will not automatically relieve an employer of their statutory obligations, nor can they deny that an employee of their statutory rights, such as the right to be paid annual leave.
Additionally, an unsigned contract does not mean that the employer can change the terms and conditions at will, depriving employees of certain rights afforded to them in the contract.
Likewise, an employee cannot refuse to carry out their duties under the contract of employment, under the premise that they have not signed their contract.
An unsigned contract will not be void, and its terms will still be enforceable.
If an employer issues a contract of employment, and the employee works under it, it will most likely be found that the contract has been accepted.
To prevent any complications arising further on down the line, employers should always follow up on any unsigned contracts as soon as possible.
It is best practice to ensure all contracts are signed and dated, as it makes the terms and conditions agreed between the parties clear.
Any contracts should always be kept for your records, and a copy should be supplied to the employee for their records as well.
Resources to help your business
Free Contract Of Employment Template
Can Contracts Of Employment Be Changed?
It is inevitable that at some point during the employment relationship, either party will want to change the terms and conditions of the employment contract.
Why Would Either Party Want To Vary The Contract Terms?
An employer may want to change contract terms due to a business restructure or for economic reasons. Terms that they may want to change may include rates of pay, place of work or hours of work.
An employee may want to change the contract as they may want to improve terms that are already in the contract, such as an increase in pay or more holiday days.
If as an employer, you wish to vary an employee’s contract of employment, you must first consult with the employee in question, to negotiate the terms and conditions to be changed, and obtain their consent. You may want to consider incentives to help employees agree to the changes.
Employees will be more likely to accept the changes if they fully understand the reasoning behind them, and they are given the opportunity to express their views. Problems can be easily avoided and issues resolved through good communication with the employee.
If the employee agrees to the changes, you should get their consent to the variations in writing, as well as giving them a written statement which details the changes that have been made.
What If An Agreement Cannot Be Reached?
If an agreement cannot be reached with the employees on the new terms and conditions, then as an employer, you can serve notice to terminate the existing contract and offer the employee to re-engage on the new terms. However, this should be treated as a last resort, once a full and proper consultation has taken place with the employee and their representative,
It is essential that you follow a fair dismissal process and give the employee the right to appeal against the decision.
It is important to note that if you decide to dismiss and re-engage 20 or more employees, you have a legal obligation to consult with any recognised trade unions or workforce representatives. Failure to do so could lead to all affected employees getting a protective award, which would give them a maximum of 90 days’ pay.
Can Changes Be Imposed Unilaterally?
No. if you decide as an employer to impose new terms and conditions unilaterally, you will be in breach of contract, enabling your employees to seek remedies in the court.
Employees may be entitled to bring a claim for constructive dismissal and also unlawful deduction of wages in the employment tribunal if the changes affect their pay. They may also consider seeking damages for breach of contract in the civil court.
Not only will imposing the changes unilaterally expose you to the risk of claims, but it will also most likely affect employee engagement and morale, which may reduce overall productivity levels.
Changing Terms: Top Tips
- Maintain good communication levels with employees throughout the consultation process;
- Make sure employees are aware of company policies and know how to raise a grievance should they want to do so if they are not happy with the proposed terms;
- Consider all the options: reaching a compromise can be vital to ensure good employment relationships are maintained.
About the author
James is on the Business Development & Account Management team at Neathouse Partners and regularly posts articles surrounding issues in HR & Employment Law, including case law & legislation updates. If you have a particular issue you would like addressed, feel free to drop James an email, and he will be happy to offer his assistance.
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