Contract of employment – why is it important?
By Kenderik Horne, a barrister at Atlantic Chambers, Liverpool, who specialises in employment law.
What is a contract of employment?
When people talk of a “contract of employment”, they often have in mind a written document. In fact, a contract of employment does not have to be in writing at all. A “contract” is just another word for an agreement. However, as we shall see, employers who do not put the terms of employment in writing do so at their peril.
What can go wrong?
Imagine you run a small business. You keep things informal, with nothing on paper. One day a group of employees say they should have been paid overtime at double rates. Their claims go back several months. They rely on a promise they say you made when their employment started. You disagree and the claim goes to an employment tribunal.
It is 10am. You are sitting in the tribunal room. The employment judge walks in. He/she asks you for the written terms of employment. An uncomfortable silence follows. You are more than likely staring down the barrel of an expensive tribunal judgment.
This sorry situation could have been avoided by either a statutory statement of terms or a written contract of employment.
What is a statutory statement of terms?
An employer is obliged under the Employment Rights Act 1996 section 1 to provide an employee with a written statement setting out the main terms of employment. This is not technically the same as a written contract of employment, because it does not have to record all the terms of employment, just the main ones. The statement must be given to the employee within the first two months of employment.
The tribunals will treat the statement of terms as strong evidence of what was agreed; especially if the employee does not object at the time the statement was given.
The information that must be included in the statement includes:
• the names of the employer and employee;
• the date when the employment began;
• the date when continuous employment began (this is a technical term about which employers and employees often need to seek advice);
• terms relating to pay and the intervals at which the employee will be paid (e.g. weekly or monthly);
• hours of work;
• holiday entitlement;
• entitlement to sick leave, including any entitlement to sick pay;
• pensions and pension schemes;
• the employer’s and employee’s entitlement to notice of termination;
• job title or a brief job description;
• where it is not permanent, the period for which the employment is expected to continue or, if it is for a fixed term, the date when it will end;
• either the place of work or, if the employee is required or allowed to work in more than one location, an indication of that fact;
• details of the existence of any relevant collective agreements which directly affect the terms and conditions of employment (again, incorporating collective agreements into individual contracts of employment can be complicated and employers may want to seek advice about this);
• a note giving certain details of disciplinary and grievance procedures, and stating whether or not a pensions contracting-out certificate is in force;
• certain further terms if the employee works outside the United Kingdom;
The list above represents the bare minimum that an employer must give to the employee to comply with the employer’s legal duties. However, there are advantages to preparing a professionally drafted written contract.
What are the advantages of a written contract?
A full written contract gives an extra layer of certainty to employers and employees alike. Whereas a statutory statement of terms is just evidence of what was agreed, a written contract contains the terms themselves. The document will generally be conclusive as to what the terms are.
Many employers wish to insert anti-competition clauses (often referred to as “restrictive covenants”) into contracts of employment. The aim is to restrict the employee’s activities for a period of time after the end of their employment. Examples might be a clause preventing the employee from working for a competitor for six months, or from contacting any of the employer’s clients. Such clauses can be very effective, but they need careful drafting. Unless they are written in very precise terms, they will be impossible to enforce.
In particular areas of industry there may be some disciplinary rules that are so important that the employer will want to make them part of the written contract of employment. For example, a road haulage business may want its drivers to agree in advance that it is automatically gross misconduct to have alcohol in their vehicles, or to test positive for cannabis while at work.
Likewise, an employee may want a full written contract. This may be for peace of mind from the outset – the employee might have to wait two months for the statutory statement. Alternatively it may be because the employee has negotiated generous terms which do not form part of the statutory statement. Examples might be medical insurance, benefits under a permanent health insurance scheme, or a compensation package to be paid on termination.
Sources of help
Statutory statements of terms and written contracts of employment must be prepared with care. Employees might require help to interpret them. Good advice is essential. For some contracts, it may be good to seek advice from ACAS (www.acas.org.uk) or a local Citizen’s Advice Bureau. In many cases, especially where precise drafting is required, the employer or employee concerned will benefit from the services of a solicitor and barrister.
A stitch in time…
Whether it is a statutory statement of terms or a written contract of employment, the message is clear – get it right, and get it in writing. A well-drafted document lets everyone know where they stand and avoids disputes later on. A poorly written document or nothing at all, runs the risk of a costly trip to the employment tribunal.
Disclaimer: The views expressed in this article are the views of the author only. If any issue affects you, you must instruct a solicitor and take appropriate legal advice.