Employment Contracts

Why are employment contracts needed?

By law, an employer must provide an employee or worker with a written statement (usually in the form of an employment contract) containing their main terms of employment. When properly drafted, written employment contracts can provide good protection for both an employer and employee, and can help avoid disputes down the line.

When should employment contracts be given to employees?

Since 6 April 2020, employers are required to give a written contract to employees on or before that employee’s first day. Under UK law therefore, any new employee or new recruit should be receiving their written statement or employment contract at the start of the employment relationship at the latest. Sometimes, an employer will decide to send an employment agreement out shortly after the job offer is made via an offer letter.

What must a written statement or employment contract contain?

It is a legal requirement (under the Employment Rights Act 1996) that an employment contract must contain things such as an employee’s start date (i.e. when continuous employment began), salary (ensuring it complies with the requirements of the national minimum wage), job title, working hours, place of work, holiday entitlement (including annual leave and public holidays entitlements), notice periods, leave entitlements (e.g. parental leave) and whether any collective agreements apply (collective agreements are separate agreements between an employer and a representative body such as a trade union). In reality however, a much more detailed contract is advisable in order to protect both employer and employees and to set out quite clearly each party’s rights and responsibilities to each other.

What other clauses can an employment contract contain?

There are many things that are advisable to include in an employment contract. Examples include clauses relating to:

• Confidentiality (sometimes referred to as non-disclosure agreements or NDA’s) – insisting that employees will keep their employer’s affairs confidential;
• Intellectual property rights – saying that anything created by employees during their employment belongs to the employer;
• Pay in lieu of notice – allowing the employer to bring forward employees’ end dates and pay them for their notice periods;
• Garden leave – allowing the employer to insist that the employee stays away from work during their notice period;
• Post-termination restrictions – these will restrict what an employee can do after they’ve left their employment, e.g. potentially restricting an employee from joining a competitor;
• Sick pay provisions – detailing how and when an employee is entitled to sick leave and sick pay. For example, a contract will sometimes say that an employee is only entitled to statutory sick pay, whilst at other times it will provide a more generous sick pay entitlement;
• Probationary period – having a probationary period (sometimes referred to as a probation period) – e.g. often for the first 6 months of employment – can be an effective way for an employer to monitor the performance of new employees;
• Pension – details of what pension schemes or pension contributions apply;
• Additional benefits – which could include anything from a Christmas bonus to additional remuneration such as bonus or commission schemes;
• Fixed period – a fixed term contract sets a specific length (or sometimes a minimum period) of employment between employer and employee.

Any other benefits to giving employment contracts?

Yes, an employee will often turn to their own employment contract for guidance on their employment rights, and whilst an employee may still decide to seek impartial advice on their employment rights (including their statutory rights), having a written statement of contract terms may at least reduce the likelihood of them turning to a solicitor.

When does an employment contract become legally binding?

Ideally, a contract of employment should be given to a new employee at the very latest on their first day of employment. Also, ideally, you should get both employer and employee to sign the contract of employment. This way, there can’t be any dispute as to whether you have a legally binding agreement because the contract will become legally binding on the date of it being signed by employer and employee. However, we often come across situations where a contract has been given (but not signed) and an employee has still been working to the contract terms for a period of time. In such a situation, there is often an argument that employer and employee have accepted the contract terms through their conduct (i.e. by working for the employer, the employee has agreed the contract terms). Whilst not ideal, this type of situation (where a contract has been given is at least preferable to a situation where legal terms have just been verbally agreed between the employer and the employee. In that type of situation, it’s very difficult to ascertain what agreement is actually in place.

How is an employment contract different to a staff handbook?

Whilst an employment contract contains the express terms of an employee’s contract (which can only be changed in specific ways), a staff handbook will often be non-contractual (meaning it can be changed much more easily). A handbook (sometimes referred to as an employee handbook) will usually contain all of the employer’s policies and procedures; from things such as sickness policies and disciplinary and grievance procedures to equal opportunities policies and expenses policies. Read more about staff handbooks, policies and procedures here.

But aren’t disciplinary and grievance procedures sometimes set out in an employment contract?

We would always advise against this approach. By including these procedures in a written statement or employment agreement, an employer is essentially tying themselves down to procedures that can’t be easily changed in future and are increasing the risk of breach of contract claims against them.

What if an employer fails to give an employee an employment contract?

An employee can potentially bring an Employment Tribunal claim against their employer if they haven’t been provided with a written contract. This can lead to the employee being awarded compensation of up to 4 weeks’ salary, but only if the employee has also brought another claim against their employer, such as an unfair dismissal claim.

Can an employee rely on things not written down in their employment contract?

Potentially yes. Some unwritten things can become part of employment contracts by a method called custom and practice, i.e. because they’ve happened regularly over a period of time. For example, if an employer has paid an annual bonus to an employee for the past 10 years, there’s an argument to say that the legal right to receive that bonus has become part of the individual’s contract (even if it’s not actually written down in the contract). The employer could have avoided any confusion around this earlier however by explaining in writing that the annual bonus is conditional on certain things.

How can an employment contract be changed?

There are 4 ways in which an employment agreement can be changed. They are:

• Changes allowed by the contract – sometimes an agreement will have a clause in it saying that certain things can be changed by the employer from time to time (e.g. the ability to change an individual’s job title). These clauses are sometimes referred to as flexibility clauses, but care should be taken with the way they’re worded and with the way they’re applied by the employer.
• Changes agreed – where an employer and employee agree to changes, that agreement should be set out in writing. Sometimes, faced with the risk of redundancy, an employee may prefer agreeing to certain changes over losing their job.
• Forcing the change on the employee – if an employee has refused to agree to changes, the employer could look to force those changes on the employee and hope that the employee doesn’t push back. This is risky and runs the risk of the employee protesting and bringing a claim for any financial loss they’ve suffered as a result of the action, or alternatively, the employee resigning and bringing a claim for constructive dismissal.
• Firing and re-hiring – if an employee refuses to agree to changes, there is another last resort option for the employer which involves dismissing the employee and offering the employee another job on the revised express terms. This is again risky, because if the employee has been with the employer for at least 2 years, they can sue the employer for unfair dismissal.

How can an employment contract be brought to an end?

An employment contract can be brought to an end either with notice (as per the notice period in the employee’s contract) or without notice (e.g. where the employee has done something to justify the employer ending their contract or because the contract was for a fixed contract term only). Read more about dismissals here.

What other types of contracts are there?

Depending on the employment status of an individual, it may be that employee contracts are not the most suitable type of agreement for you. For example, for casual workers, you may wish to consider putting zero hours contracts in place. Alternatively, some employers will turn to using an agency worker instead. In other cases, the employment status of an individual may mean that you should be looking at a self employed agreement (more on the issue of self employed agreement arrangements here). Of course, these different varieties of contracts will significantly affect the types of employment rights an individual will have. For example, a self employed individual won’t be entitled to be paid the national minimum wage or be paid holiday pay. It’s important however that the contract the individual is given accurately reflects the true nature of the relationship between them and their employer.

If you need any advice on employment contracts, please contact a member of our employment law team in confidence here or on 02920 829 100 for a free initial call to see how they can help.