Contracts of Employment
A contract of employment is an agreement between an employer and employee and is the basis of the employment relationship.
A contract 'starts' as soon as an offer of employment is accepted. Starting work proves that the employee accepts the terms and conditions offered by you, the employer.
As an employer, all your employees will have a contract of employment with you regardless of whether or not anything is in writing.
You might assume that a contract of employment consists of only those things that are set out in writing between you and your employee.
Many of the main issues, such as pay and holidays, are usually agreed in writing. However, contracts are also made up of terms that have not been detailed in the written documents.
This is either because they are:
• too obvious to mention: for example, you would not expect a contract to say that 'an employee will not steal from an employer'
• necessary to make the contract work: for example, if you are employed as a driver it is assumed that you have a valid driving license
• custom and practice: some terms of a contract can become established over time.
If there is no formal employment contract, the contract will be based on statutory rights and custom and practice.
Implied terms, such as the implied duty of trust and confidence form part of all contracts, whether written or not.
It is advisable to have a written contract setting out all the main terms and conditions of employment.
If you have specific issues key to your business it is essential these are addressed in your contracts of employment. For example, you may want to include appropriate wording if employees cannot take holiday during a specific period, or if certain behaviour will attract disciplinary action.
Without a formal contract, disputes often occur due to different understandings about terms. Simple misunderstandings over what is or what is not in a contract are one of the main causes of employment tribunal claims.
The Written Statement
Employees are legally entitled to a Written Statement of the main terms and conditions of employment after a month’s service.
This should include details of things like pay, holidays and working hours.
You need to provide this within two months of the employee starting even if they are working for you for less than two months.
If your employee works abroad for more than a month during their first 2 months’ employment, you must give them the written statement before they leave.
Is there a standard contract of employment?
The wording of your employment contract will depend on the type of contract and the seniority of the employee.
You may need more senior employees and sales people to enter into post-termination restrictions. These restrictions are to protect your business and would be worded so that if your employee leaves, they cannot solicit or deal with your clients for a set period of time.
You cannot prevent your employee from seeking alternative employment, but you are entitled to protect your legitimate business interests.
You may need a fixed-term employment contract to cover maternity or paternity leave.
An existing contract of employment can be varied only with the agreement of both parties.
What should be included in a written statement?
The following information should be included in one single document known as the principle statement:
• the business’s name/name of employer
• name of the employee
• date employment and continuous employment started (and if a previous job counts towards a period of continuous employment, the date the period started
• job location
• how much and how often an employee will get paid
• working hours
• holiday entitlement (and if that includes public holidays)
• job description/job title
• details of any collective agreements that directly affect the employee's conditions of employment
As well as the principal statement, a written statement must also contain information about:
• how long a temporary job is expected to last
• the end date of a fixed-term contract
• notice periods
• collective agreements
• who to go to with a grievance
• how to complain about how a grievance is handled
• how to complain about a disciplinary or dismissal decision
Additional information can be provided in other documents such as staff handbooks, intranet sites on:
• sick leave and pay entitlements
• pensions and pension schemes
• disciplinary and grievance procedures
The written statement must say where this additional information can be found.
If your employee has to work abroad for more than a month, you must state:
• how long they will be abroad
• what currency they will be paid in
• what additional pay or benefits they will receive
• terms relating to their return to the UK
This information can be given to the employee in a separate document.
An employer may send an employee to another country in the European Economic Area (EEA). In this situation employees must get the terms and conditions that are the legal minimum in that country for:
• working hours and rest breaks
• holiday entitlement
• minimum pay (including overtime)
Flexibility clauses are terms in a contract that give employers the right to change some conditions of employment, e.g. relocation.
You can only use flexibility clauses to make reasonable changes. For example, you could not use a flexibility clause to insist on an employee moving to another country to work with 1 week’s notice.
It is common for employers to treat new employees as being in a ‘probationary’ period when they first start work.
Some employers may then argue that the employee can be dismissed while they are in this probationary period with no warning (notice).
Some employers may also often argue that employees do not have usual employment rights to, for example, pay or holidays, during this ‘probationary’ period.
There is no such thing in law as a ‘probationary’ period although the unfair dismissal qualifying period should always be considered.
Once you have started work, the number of weeks an employee has worked begins on the day they start, not from some time when a ‘probationary’ period is over.
The employee’s full contractual rights also start from the first day of work, unless their contract says otherwise.
The contract could, however, contain terms which only apply during the probationary period and which are less favourable than those which apply when the probationary period has ended. These terms must not take away the employees statutory rights.
The employer can extend the employee’s probationary period, as long as the contract says they can do this. For example, the employer may want to extend the probationary period in order to have more time to assess the employee’s performance. However, this can only be done if the contract has a term which says the probationary period can be extended under these circumstances.
Changing or varying a contract
At some point, either party bound by a contract of employment may want to change it.
• you may want to reorganise the business due to economic circumstances. This might mean changing the working hours or pay of your employee.
• your employee may seek improvements in their pay or holidays, or want to change the hours they work due to domestic responsibilities.
An existing contract of employment can be varied only with the agreement of both parties.
If you want to make changes to your employee’s contract, you must get their agreement. You should:
• consult or negotiate with your employees or their representatives (e.g. from a trade union or staff association)
• explain the reasons for any changes
• listen to alternative ideas from their employees
If your employee wants to make changes to their contract, they should explain the reasons. They cannot insist on making a change unless it is covered by a statutory right.
Changes can be agreed either on an individual basis or through a collective agreement.
When any change to a contract of employment occurs you should give your employee written notification of the changes, within one month of the change taking effect.
As an employer you may have an agreement with your employees’ representatives (from trade unions or staff associations) that allows negotiations of terms and conditions like pay or working hours. This is called a collective agreement.
The terms of the agreement could include:
• how negotiations will be organised
• who will represent employees
• which employees are covered by the agreement
• which terms and conditions the agreement will cover
Changes of employer
If someone starts working for a different employer, they will normally have to be given a new written statement within 2 months.
However, if the name of your business changes or there is a new employer but no other changes in terms and conditions, you as the employer do not need to issue a new written statement.
You will still need to write to your staff about the changes within a month.
Sometimes changes to an employee’s terms and conditions, like a demotion, can happen as a result of a disciplinary measure.
You should make sure the staff handbook or intranet site contains information about how this could happen in the section dealing with disciplinary procedures.
If there are specific circumstances that will result in dismissal such as unauthorised absence at a certain time, these should be clearly defined in the disciplinary procedure.
Dealing with problems
Problems can arise if:
• you try to change an employee’s contract without agreement, or you re-employ someone on new terms and conditions
• there is a breach of contract where one of the terms in a contract is broken (e.g. you do not pay the agreed wages or the employees fail to work agreed hours)
You should get legal advice from your solicitor at an early stage to avoid the issue getting out of hand. They will advise you on how to try to solve disputes about contract changes by talking informally to your staff or by going through mediation.
If the problem can not be solved, you or your employees may have the right to take legal action.
It’s important to get advice first because legal action can be expensive.
Making a change without agreement
If you make a change to your employee’s contract without getting agreement (including by using flexibility clauses unreasonably), employees may:
• have the right to refuse to work under the new conditions
• say that they’re working any new terms under protest, and are treating the change as a breach of contract
• resign and claim constructive dismissal
• be able to take a case to an employment tribunal
If an employee disagrees with new terms and conditions but does not say or do anything, this may count as agreeing to the changes.
Breach of contract claims
If your employee claims breach of contract and they can not solve things informally with you, they may be able to take their case to a civil court or an employment tribunal (or an industrial tribunal in Northern Ireland).
You may be able to make a counter-claim.
Claims and counter-claims can only go to a tribunal if they:
• are related to an employment contract issue
• still have not been solved when the employee ends their employment
The claim or counter-claim can not be related to a personal injury, or certain types of contract term like intellectual property rights.
Usually, employees must make a claim to a tribunal within 3 months of ending their employment.
You as the employer have 6 weeks from receiving a copy of the claim to decide whether to make a counter-claim.
If the tribunal agrees with the employee’s claim, they may award compensation.
This can only be for financial loss (e.g. non-payment of wages), up to a maximum of £25,000 for contract claims.
Termination of an employment contract
Your employees may terminate their contract by resigning or you may terminate the contract by dismissing an employee.
Employees should make it clear that they are formally resigning and it would be best to do this in writing. The correct amount of notice should be given.
By law employees will need to give either one week's notice or the amount stated in the contract whichever is the longer.
You as the employers must normally give employees at least the notice stated in the contract of employment or the statutory minimum notice period, whichever is the longer.
The statutory notice required is:
• one week if the employee has been employed between one month and two years
• one week for each complete year of employment (up to a maximum of 12 weeks) for example, for two year employment the notice period will be two weeks, for six years of employment the notice will be six week.
Summary dismissal is dismissal without notice.
This should only be used for gross misconduct, where a situation occurs that is so serious (such as theft, violence, fraud) that you as the employer give no notice.
However, you should investigate the circumstances before making a dismissal and follow a fair procedure even in these cases.
Illegal contracts of employment
A contract of employment will be illegal if:
• all or part of the wages are paid cash in hand; and
• tax and national insurance contributions are not paid on the wages when they should have been; and
• the employee knew they were being paid in this way to avoid paying tax and/or national insurance contributions.
A contract will also be illegal if it is for an immoral or illegal act.
A contract of employment will not be illegal if only one of the parties is not declaring the payments and/or making appropriate deductions.
If a contract tries to take away the employee’s statutory rights, it is not an illegal contract but it cannot be legally enforced.
How we can help
Our employment law solicitors are experienced in contract advice for employers and can help you with both writing contracts and advising on breach of employment contract issues.
We can ensure you have well-written contracts that are suitable for your organisation and clearly set out your employee’s terms and conditions.
We will also ensure your contracts comply with changes in employment law.
We can advise on special provisions for your business and help you protect your business by advising on suitable post-termination restrictions (known as restrictive covenants) which are legally enforceable.
Please contact our employment lawyers via Daniel Zakis on 0121 705 7571 or email firstname.lastname@example.org
This article is for general information purposes only. It does not constitute technical, financial, legal advice or any other type of professional advice and is no substitute for specific advice based on your individual circumstances. We do not accept responsibility or liability for any actions taken based on the information in this article. For more information, please click here.