The Contract of Employment
Here at Legally Blogged, we are always looking for ways to make employment law more accessible in order to assist you in the workplace, especially during these uncertain times. Our previous blogs help with advice and guidance on the Coronavirus pandemic, rights under maternity leave and even cases our very own Chelsea Brooke-Ward has won on behalf of aggrieved workers’ and current affairs.
To continue this support, we will be publishing blogs focusing on the very core of Employment Law; the basics employees are entitled to and the support both they and employers can get if something was to go wrong (lets face it, it happens or we’d be out of a job). So we bring to you Employment Law, Simplified.
To kick this off, we are starting with a blog on:
The Contract of Employment.
In this post, you will learn exactly what a ‘Contract of Employment’ (COE) is and how it works. You will be shown how a COE should be drawn up, such as structure and what should be specified, and how it can be executed. It will also be important to draw upon the different ‘types’ of workers and how their rights and status affect the COE. Finally, this post will give you guidance and support if either party breaches the contract.
It is important that this document is right and sets out the formalities of the relationship, generally speaking in someones employment you get one shot at this, as vary a contract later down the line can cause all sorts of issues and may even lead to unfair dismissal claims. So it is imperative this right from the beginning to avoid any unnecessary grievance or litigation later down the line. Also its good so each party knows where they stand and there will then be very little room for ambiguity when done correctly.
So………
What is a Contract of Employment?
A contract is a mutually agreed-upon set of duties and obligations dictating how a relationship between an employer and an employee will be managed. Basically, the contract is an agreement that a worker will undertake work, and their employer will provide monetary remuneration (i.e wages).
The contract is binding as soon as the worker accepts the offer of employment. The contract need not to be written from the outset of the worker’s duties – it is quite common for an employer to make a verbal offer, and for the worker to reply in the affirmative. However, should a contract last a month of more, an employee is legally entitled to a ‘written statement of particulars’. This is not an employment contract but will outline the main conditions of employment. This consists of the main document (principle statement), which must be provided on the employee’s start date, and a wider written statement which must be provided within two months of the employees start date. If these aren’t provided an employee is successful in bringing some other tribunal claim such as wrongful dismissal they may be entitled to two weeks’ pay for a failure to provide a written statement to them. So bear that in mind.
It is on the onus of the employer to specify the conditions of the COE, and, within reason, these can take any such form the employers feels is most appropriate to the job at hand. However, a contract cannot be used to nullify any statutory legal rights, such as the right to receive the national minimum wage and the right to take annual paid leave.
The advice we would give is to create or obtain COE in writing as early as possible thus minimising future disputes. Although verbal agreements are legally binding, it is almost impossible to prove what the other party has said.
Although a COE is effective from the moment the worker accepts the position, some jobs may be offered ‘subject to conditions’, meaning until such conditions have been met, the full contract of employment is not in effect. These conditions could include a DBS check or satisfactory references, or confirmation of qualifications etc. Should such conditions not be met, the company is within their rights to withdraw the job offer, even though the individual has accepted it. The company would not be in breach of contract or be required to give a notice period in those circumstances.
How should a Contract of Employment be drawn up?
A contract comprises of two types of terms: ‘express’ and ‘implied’.
Starting with Express Terms.
Express terms are those that are clearly written and defined within the contract. They include terms relating to the below:
- Wages
- Working hours
- Overtime policy
- Job title
- Redundancy pay
- Sick pay
- Holiday pay
- Benefits, such as a pension or health insurance.
- The notice period an employer will issue in the event of dismissal
- Start date (and End date if it is a temporary contract).
- Disciplinary procedures.
If the position includes a probationary period, this must also be set out in the written statement. The statement should also detail where the worker can access official company policies on any activities relevant to their work. It may be worthwhile including a clause to say that any policies referred to do not become contractual merely by their reference in the COE again to avoid ambiguity - if that is indeed intended to be the case. As any attempt to change policies that attract contractual status again may cause complications, as consent in writing is usually required to vary a contract - and a COE is no different.
Express terms are usually written in the contract, but as above there has been occasions where the Tribunals have found express terms within other documentation. These have included a statement of terms and conditions, a worker’s handbook, correspondence sent to the worker prior to their official start date and any formal announcements made by the employer via email, a message board in the staff room or any other method whereby most people would be expected to notice and assimilate the information given.
Then we have Implied Terms.
Implied terms are not agreed on a case-by-case basis. Rather, they arise naturally from social conventions, conventional expectations governing how employers and workers ought to behave and any policy changes or recommendations made by the employer, as a result of consulting with a trade union or other negotiating body. And by their name as implied into the contracts to give them business efficiency.
It is reasonable to assume that both a worker and an employer will appreciate the need for a basic level of trust which leads us nicely on to the Responsibilities.
What responsibilities do you owe to your employer and what responsibilities does an employer owe to a worker.
An example of this would be to say it is not appropriate to tell those working outside the company about an upcoming product launch, as this could result in a loss of competitive advantage. Both parties have a responsibility to carry out their duties in a safe manner giving regard to the other party thus upholding the terms and conditions of the COE.
Whilst an employer has the right to give instructions regarding how a worker ought to carry out their duties, it is not reasonable to expect a worker to undertake illegal or excessively dangerous activities.
Should both parties agree on such amendments, it is in fact legal to change the terms of a contract. If and when such changes are agreed to be made, it is the responsibility of the employer to provide a new COE with these terms incorporated in writing within 30 days.
The original COE can stipulate that the employer has the right to make reasonable changes, providing they first consult with the employee. Should the employee not agree to the proposed changes, the lawful course of action is to sever the contract, in accordance with the notice terms, and then offer to draw up a new contract with the worker. However, it is still possible that the worker could take the case to an Employment Tribunal and claim unfair dismissal.
If an employer decides to terminate the contracts of an entire team of people, let’s say 45 employees, with such intentions as creating a new contract with amended terms, they have the legal duty to discuss this action with any trade unions or representatives recognised by the organisation. If this type of consultation is not undertaken, they could make themselves liable for up to 90 days’ salary per affected worker.
When understanding responsibilities an employer and employee owe to each other, it is first important to understand the individual’s status of employment. This is because it has a direct bearing on their employment rights under law, as well as their employer’s duties. An individual’s status also has implications for tax purposes.
Please click here for a detailed explanation of each. We encourage any employer and employees to look this over as you could be entitled to rights you are not aware of.
Employers also have a legal obligation to ensure they take the right amount of income tax and National Insurance from their workers’ wages. They must register as an employer using HMRC’s PAYE Online Service. Once they have registered, they must send regular reports outlining how and when they pay workers, together with deductions made and what tax codes have been used. Employers are exempt should they employ workers who earn less than £120 per week, receive benefits, draw a pension or hold down another job. Employers also have a responsibility to inform HMRC when a worker joins, when they leave or when their status changes.
Breach of a contract.
In the event that an employer or worker breaches a COE, they would refer to a tribunal to recover costs, mainly of monetary value. The financial loss would be owing to the actions of the other party (usually loss of earnings).
We would always suggest informally resolving disputes; legal action can not only be costly but can also be detrimental to relationships built within the workplace. However, the decision to take legal action should not carry any penalties in the workplace.
In Summary:
A COE is an agreement dictating the relationship between an employer and a worker. It does not need to be written, although employers are legally obliged to provide a written statement within two months of the worker’s start date.
A contract cannot strip any worker of their rights under UK employment law, such as the right to receive the national minimum wage. The terms and conditions of a contract can be changed, but this may only be done after proper consultation with the worker, and in some cases, a Trade Union representative. Even if the contract contains a ‘flexibility clause’, it is illegal for an employer to make significant changes in a unilateral fashion.
It is important to clarify a worker’s status, as this may affect the terms of a contract. An employer has a duty to ensure that they deduct the correct amount of National Insurance and income tax from their workers’ wages, although they may be exempt from reporting this information to HMRC under certain circumstances.
If either party break the terms of a contract, the dispute may be resolved informally or taken to an employment tribunal. For example, a worker may take their employer to court in order to recover wages that remain unpaid.
We acknowledge that this is an extremely worrying and stressful time for all our readers, and we hope that the above assists you. However, if you require any specific or additional legal advice which was not covered in the above, please get in touch using the contact us form.