Contract of Employment – Why do they matter?

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A contract of employment is a legally binding document between employer and employee and the term “employee“ is defined by the Employment Rights Act as an individual who has entered into or works under a contract of service and a contract consists of a mixture of “express” and “implied” terms.

Express terms in a contract of employment

Express terms are those which are actually stated in writing or given verbally. Written express terms are not restricted to written employment contracts but can include a number of the Company’s other documents, including procedures and employment handbooks although often these are deemed to be “non-contractual”.

Express terms also relate to pay, fixed or [art time work, equal pay, parental leave, working hours and express terms must also comply with the minimum legal requirements relating to paid holiday, breaks etc.

Also, as from April 2020, it is a statutory requirement that employees are given a written statement of particulars of employment setting out the key terms of employment under which they are employed on their first day of work.

Implied terms in a contract of employment

Terms can also be implied into contracts and this might happen because the term is incorporated because of;

  • collective or workforce agreements
  • statutory i.e. legal requirements.

There is also an implied duty of mutual trust and confidence between employer and employee and a duty on the employer to provide a safe system of work and safe working environment – often referred to as the employer’s duty of care.

The employee’s right to the minimum wage, a period of notice and equality relating to pay between men and women are also implied terms.

Therefore, as many terms as possible should be clearly set out in writing before or when they start their job. This helps to avoid uncertainty or a dispute between employer and employee about the terms.

What should be included in a contract of employment?

Parties to the contract

  • name of employer or employing organisation and employee

Date when employment commenced

  • whether this employment is continuous with previous employment – maybe due to a TUPE transfer

Periods of notice

  • notice to be given by either party to terminate employment
  • often notice periods are longer after successful completion of a probation period
  • acknowledgement that employment can be terminated without notice in the event of gross misconduct

Remuneration and pay etc

  • details of either hourly rate or salary
  • frequency – ie weekly or monthly (day/date when paid)
  • method ie BACS
  • overtime arrangements and rates etc

Hours of work

  • is the work part of a shift pattern?
  • Fixed hours ie 40 hours per week – 8.00am – 5.00pm Monday to Friday with 1 hr for lunch which is unpaid
  • Saturday or week end working?
  • Normally a clause to mention flexibility regarding hours to meet the operational needs of the business

Holiday and sick pay arrangements

  • Details of holiday entitlement (which must meet the legal minimum)
  • Do some days have to be reserved for Christmas shut down
  • Holiday year – ie January – December
  • Holiday booking procedure, minimum notice required to take holiday
  • Sick pay – minimum of SSP?
  • Any enhanced or discretionary sick pay arrangements

Normal place of work

  • Location where job is based
  • Does location vary?
  • Or – is the employee home based?

Disciplinary and grievance arrangements

  • Details of the Disciplinary procedure
  • How the employee can raise a grievance

Employee benefits

  • Private health care (just for the employee or spouse and/or family)
  • Entitlement to car or car allowance (who pays for private fuel?)
  • Pension scheme membership details – auto enrolment is the minimum
  • Life assurance or death in service provision

Other considerations for an employment contract

Confidentiality

Contracts should contain a confidentiality clause. These are important because they clarify that certain information about the business including financial details, acquisitions, customer listings, supplier terms of business etc which are not in the public domain cannot be disclosed to third parties either during employment or after termination.

Confidentiality clause are critical in some specific functions – for instance Sales – due to the nature of their relationship with customers and clients, they could cause considerable damage to the business if they move to a competitor.

Similarly, people who work in IT who may be developing software or new systems should be covered by confidentiality clauses and it is not uncommon for Chefs in Restaurants and Hotels to have specific clauses because the recipe and ingredients for some signature dishes are highly confidential.

Recently a Farming business wanted a specific clause in a contract for a Farm worker preventing the employee from disclosing that the farm was part of a badger culling programme. In that situation, if this information had become common knowledge, it could have done significant damage and even led to demonstrations at the farm.

Employment conditions

It is necessary to clarify any conditions on which the offer employment is being made. All offers of employment are conditional upon the employee being eligible to work in the UK.

However, job offers can also be conditional upon references being received as well as pre-employment medical or health questionnaires. But it is necessary to take advice if a job offer is withdrawn on the basis of a specific health condition if it could lead to a disability discrimination claim.

Also, some job roles require the employee to have a satisfactory Disclosure Barring System (DBS) clearance. These are normally either at Standard or Enhanced level and they are effectively a criminal record check (previously referred to as CRB) and apply typically in roles where the employee would be working with very young children ie Nurseries, as well as Schools, Colleges and the Health sector. It will also apply where the employee is working with vulnerable adults or individuals with learning difficulties – DBS checks often apply in Charities.

Bonus schemes

There is no right or wrong answer about whether details of a bonus scheme should be included in a contract as it will depend on a multitude of factors. Some employers argue bonus schemes are discretionary ie non contractual but regardless, there can be circumstances where a bonus scheme can be seen to be “custom and practice” because it has always paid out. Advice should always be sought regarding bonus (and commission) scheme arrangements being included in a contract.

How long is a contract of employment?

It depends! It is quite likely that if a contract of employment contains all the necessary information, it will have up to 25 different clauses and may be between 8 and 10 pages.

Contracts for Directors, which are often referred to as Director Service Agreements (DSAS), can go into more detail about the Director’s duties and obligations and it is quite common for a DSA to stretch to 20 pages – or more.

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The dedicated page for Contracts of Employment can be found here. 

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