Why do employers need to provide a contract of employment?
A recent case for Wake Smith has highlighted the importance of employers’ providing clear, well-drafted and legally enforceable employment contracts to their staff.
An employment contract is a written agreement that defines the terms and conditions of the employment relationship.
Harriet Gardner, solicitor in our Employment department, looks at what employers should be addressing.
This article covers:
- What is an employment contract?
- Why have an employment contract?
- What should an employment contract include?
- Does an employment contract have to be in writing?
- Can a contract of employment be changed?
- Your next move?
What is an employment contract?
An employment contract is a legally binding agreement between an employer and their employee, which states the conditions of employment.
Section 1 of the Employment Rights Act 1996 requires employers to provide a written statement, setting out certain information relating to employment (often referred to as a section 1 statement) to employees and workers.
As of 6 April 2020, the information required must be provided before or on the employee’s first day of employment (some limited information can be provided later). Technically, a section 1 statement is not a contract itself, however, a well drafted employment contract will provide the information required in a section 1 statement.
An employer will usually be in a position to dictate the terms of the contract. Employment Tribunals (and the courts) are conscious that the contract of employment may not reflect the actual legal obligations, or the agreement in practice. If a dispute arises, the Employment Tribunal would “look beyond the written contract” and will consider if the written contract reflects the course of dealings between the parties. A well drafted contract of employment will, therefore, reflect the true relationship, obligations and expectations.
Why have an employment contract?
The purpose of an employment contract is to ensure both an employer and employee have a clear understanding of what is expected during the term of employment, each parties’ rights, their responsibilities and the obligations. It is also used by most employees as the way to comply with providing a section 1 statement.
An employee, or worker, cannot bring a freestanding claim for a failure to provide a section 1 statement. However, if an employee, or worker, brings a separate successful legal claim (including unfair dismissal and discrimination), and if they can demonstrate that they were not given the information required in a section 1 statement, they could be awarded up to one to two weeks additional pay (subject to the statutory cap on a weeks’ pay, as set by the government).
What should an employment contract include?
There is no “one size fits all” contract of employment.
The contract of employment can help to demonstrate that the company has complied with the law. In addition to compliance, a contract of employment is one of the most important tools available to an employer in respect of protecting the business; both while the employee is employed, and after the relationship has ended.
If drafted carefully, the contract of employment can help the business to tackle their commercial needs, and risks, including preventing an ex-employee from poaching customers or working for a competitor.
The first thing to consider is that contracts should include the necessary information required to comply with a section 1 statement.
This includes:
- The names of the employer and employee
- The employer’s address
- The start date
- The date on which the employee’s period of continuous employment began
- Where the employee or worker will work
- Salary or method of calculating remuneration and when it will be paid
- Job title or a brief description of the job, listing the general responsibilities
- Terms and conditions relating to working hours. Including the number of hours, the days of the week the employee is required to work, and if/how the hours / days are variable.
- The details relating to any probationary period including how long it is and its conditions
- The rules relating to any grievance and disciplinary procedures
- Holiday entitlement and pay, including how it will be calculated when the employment ends
- The amount of sick leave and pay
- Any other paid leave that the employee might be entitled to
- If the employee is entitled to any other contractual and/or non-cotnractual benefits, and the details
- Notice period required from either side to end the contract
- Details and eligibility of the employer’s occupational pension scheme
- If the contract is for a fixed period, and any terms that might apply
- If the employee is required to complete any training (and who is responsible for the payment of any training fees)
It is unlikely that the contract of employment will cover every possible eventuality. However, a carefully drafted contract of employment will consider the main risks to the particular business and will require the employee to act in the employer’s best interest.
Does an employment contract have to be in writing?
By law, the information required within a section 1 statement must be provided in writing.
If an employment contract is clear and easily accessible, it is less likely disputes will occur as both the employer and employee know what is expected.
Can a contract of employment be changed?
An employer or an employee may change a contract of employment. However, neither side can change an employment contract without each others agreement.
Employers should, however, be mindful that the employment relationship is fluid. It is possible that the contract of employment does not set out the entire relationship that governs the relationship between the employer and the employee.
Implied terms are terms which have not been specifically stated, and the parties might not have even considered the matter before agreeing the contract. An example being that there is an implied term that the parties will act in a way that upholds the “mutual trust and confidence” – if the employer or the employee acts in a way that, without reasonable and proper cause, destroys or damages the trust or confidence in the relationship, it could be a breach of contract.
Harriet Gardner said: “It’s very common for small to medium-sized enterprises not to issue employment contracts to employees, or neglect to follow up in getting them signed. This is not best practice, and failing to provide an employment contract can open up insecurity to the employee, and risk and vulnerability to the employer.
“The overarching reason why employment contracts are best practice and a necessity, is to avoid misunderstandings. Properly drafted contracts, explicitly outlining the terms and conditions of employment provide clear points surrounding the arrangements to both the employee and the employer, and mitigates the risk of potential disputes over obligations or entitlements, and subsequently claims.
“Employment contracts are invaluable to all companies, regardless of size, and provide total understanding surrounding the employment relationship. A properly drafted employment contract will also enable the employer to undertake effective and efficient employment relations processes where required.”
Your next move?
Wake Smith’s employment specialists can draft and tailor contracts and policies to fit your business needs, ensuring they are reasonable and enforceable.
We can help with both writing and reviewing existing contracts and advising on breach of employment contract issues.
For further details on employment contracts contact Harriet Gardner at Wake Smith Solicitors on 0114 223 2726 or email [email protected]
Client review:
“I contacted Wake Smith Solicitors looking for some initial guidance / assistance with regards to an Employment Contract. I dealt with Solicitor Harriet Gardner, who I must say was extremely helpful and her knowledge regarding employment contract law, immensely aided my situation. More specifically, reviewing the basics of employment rights and targeting elements such as annual leave entitlement, national minimum wage, raising of grievances etc. all helped me in securing a successful outcome.”
