Contracts of employment guide

This series of articles will deal with the foundation of the employment relationship: the contract of employment. They will cover: the legal obligation to provide a contract and more complex clauses to consider including how to vary a contract after its terms have already been agreed, what happens when a contract is breached, and how to avoid discrimination. If you would like to know more about contracts or have any specific questions, please contact us at info@p4b-law.co.uk and we will be happy to help.

1.1 Contracts of Employment guide – Introduction


 A contract of employment is a legally-binding agreement between employer and employee which sets out the terms and conditions of employment.

If an employer does not provide a contract immediately, the employer must usually give the employee a written statement of terms and conditions within two months of them starting their job. Technically speaking, a statement of terms and conditions is different from a contract of employment. A statement of terms will usually be less detailed than a contract and is often given as an interim measure whilst a full contract is being drawn up. By law, it must cover certain topics such as date of continuous employment, hours of work, pay and holiday allowance. It is not a contract itself and will not have contractual force unless explicitly stated.

Contracts can be verbal as well as written but we strongly recommend that contractual terms are put in writing to protect both parties and to avoid confusion.

As well as the terms which have been explicitly agreed between the two parties, some terms are implied. There is an implied term of mutual trust and confidence in all contracts of employment; this means that both parties should treat each other fairly and respectfully. An employer ignoring an employee’s grievance or an employee swearing at their boss is likely to breach this implied term. Some terms are implied by law; there is a minimum notice period to be given by employers when dismissing an employee and this would apply even if the contract stated a shorter notice period. Other terms may be implied by custom and practice; for example, if an employer gives an employee a monthly bonus for several years then suddenly stops, the employee is likely to be able to claim that the bonus is an implied term of his contract and that he is legally entitled to it. Implied terms have just as much legal force as contractual terms, although it may be harder to prove their existence.

Contracts are frequently supplemented by staff or employee handbooks which set out additional policies which would be too lengthy to include in a contract. Examples of such policies could be: IT, health and safety, expenses, flexible working or company cars. It is important to state whether or not these policies have contractual force or whether they are just intended as guidance on how things are generally done at that organisation. Many employers choose to make grievance, disciplinary procedures and redundancy policies non-contractual so that they will not be in breach of employee’s contracts if they do not follow them to the letter.

Although companies frequently use one template contract for all their staff, contracts must always be adjusted to fit the circumstances. The following types of contract are common:

  • Permanent / Standard – employment is open-ended with no set end date, although it may be terminated by notice.
  • Fixed-term / Temporary – employment is set to end on a fixed date. There is usually an option to terminate it earlier with notice; if not, the employer will have to pay the employee up until the end date, even if the arrangement is not working out very well.
  • Zero hours – the employee is not entitled to any set amount of hours of work and may have weeks where no work is provided. This is common in seasonal jobs.
  • Self-employed – the worker is not an employee but has an agreement with an organisation to provide services.
  • Casual worker – the worker is not an employee but  is instead a worker and is kept “on the books” and offered work as and when they are needed, which they may accept or refuse.
  • Apprentices – the employee is taught skills on the job but is only paid a low wage.
  • Agency workers – the workers provide services to an organisation but are employed or engaged by an agency.

It is particularly important to be clear on whether staff are legally defined as employees or just workers. This is because employees have many more rights than workers including, for example, the right to claim unfair dismissal and maternity/paternity/adoption leave.

You may wonder why employers don’t class all staff as “workers” in order to save themselves some money. Firstly, employers have much more control over employees than they do workers; they are able to tell them when and how to work and discipline them if they do not co-operate; a worker can refuse work without having to give a reason. Secondly, just calling an individual a “worker” in a contract is not conclusive. It is common to see badly-drafted contracts where it is unclear whether an individual is employed or self-employed or a casual worker or a zero-hours employee and in such situations, an employment tribunal would have to consider what the arrangement is most like in practice. Frequently, where the situation is unclear, a tribunal will decide that the individual is an employee.

If there is no contract in place and a dispute arises, both parties will have to rely on any verbal agreements in place and what has arisen through custom and practice. Clearly, there is a lot of room for dispute here and if the employer and employee cannot agree, then the issue may need a mediator or even an employment tribunal to resolve it, which can be expensive, stressful and time-consuming and an employment tribunal can award up to 4 weeks’ compensation where contractual terms have not been issued I writing. Therefore, it is in both parties’ interests to have a well-written contract in place as soon as possible. If no contract was put in place at the start of the employment, it is worth arranging one as soon as possible – better late than never!

 

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