This guide is based on UK law. It was last updated in June 2011.
What is the contract of employment?
The contract of employment is the agreement between employer and employee which governs the relationship between both parties.
It need not be in writing and can be implied from the surrounding circumstances. A written contract can comprise one short handwritten page or a lengthy document following detailed negotiations. Most contracts fall somewhere in between.
Failing to provide a written contact of employment results in a lack of clarity since neither party knows the precise extent of their respective rights, duties and obligations.
By taking the time to carefully prepare a contract of employment for each employee, disputes and ambiguity about the employment relationship can be minimised. As each business has different needs and outlooks, the style and content of the contract of employment will differ.
What does the contract cover?
The content of each contract will depend on the nature of the business and the job which is on offer, although there are some standard terms and conditions.
The laws of the UK provide minimum rights and obligations, including the right to a safe system of work and minimum notice periods, the duty to obey reasonable and lawful orders and the requirement not to reveal trade secrets etc. These rights and obligations are implied into all employment contracts.
However, there are additional protections which a written contract can provide which are extremely valuable to a business, such as the ability to place a departing employee on garden leave during the notice period, the ability to make a payment in lieu of notice rather than require the individual to work out their notice etc.
Confidential information and intellectual property can be protected. There may also be legitimate business needs which require protection by way of restrictive covenants, such as customer connections, trade secrets and confidential information.
Covenants seek to prevent former employees from damaging the business following their departure. Legal advice should be taken to maximise the prospects of enforcement because such clauses are generally considered to be against public policy and invalid. For more information, please see our separate OUT-LAW Guide to Restrictive covenants in employment contracts.
The statutory written statement
The contract of employment should be distinguished from the statutory written statement of employment particulars which should generally be provided to all staff not later than two months following their start date. The written statement is not conclusive evidence of the contract of employment. The statement must include the following:
- the name of the employer and employee;
- the date when the employment began and the date when the period of continuous employment began;
- the scale or rate of pay or the method of calculating pay and the intervals at which remuneration is paid (i.e. weekly, monthly, or other specified intervals);
- hours of work (including any terms and conditions relating to normal working hours);
- any terms relating to entitlement to holidays, including public holidays and holiday pay and details as to how accrued holiday pay on termination is calculated;
- any terms relating to incapacity for work due to sickness or injury including any provision for sick pay;
- the length of notice which the employee is obliged to give and entitled to receive to terminate the contract of employment;
- the title of the job or a brief description of the work involved;
- where the employment is not intended to be permanent, the period for which it is expected to continue or, if it is for a fixed term, the date when it is to end;
- either the place of work or, where the employee is required or permitted to work at various places, an indication of that and of the address of the employer;
- any collective agreements which directly affect the terms and conditions of the employment including, where the employer is not a party, the persons by whom they were made;
- the period for which he is to work outside the UK;
- the currency in which remuneration is to be paid whilst working outside the UK;
- any additional remuneration payable and any benefits due by reason of his being required to work outside the UK; and
- any terms and conditions relating to the employee's return to the UK.
- any disciplinary rules applying to the employee or where such details are to be found;
- any disciplinary or dismissal procedure applying to the employee or where such details are to be found;
- to whom and in what manner the employee may apply if dissatisfied with any disciplinary decision or if he has any other grievance;
- any further steps in the disciplinary or grievance procedures or where such details are to be found; and
- any terms relating to pensions and pension schemes and whether there is a contracting out certificate in force in respect of his employment for pension purposes.
If there are no terms relating to any of the items noted above, the statement should state that there are no such terms.
Also, any changes to the relevant terms must be given to the employee at the earliest opportunity and not less than one month following the change. An employee who has not received the statement may apply to an Employment Tribunal for a declaration as to the relevant terms.
Thought should also be given to the drafting of employment policies and handbooks which detail additional issues which affect the employment relationship.
These can cover Equal Opportunities, Internet and Email use, Maternity and Parental Leave etc. and other areas where the employer wishes to detail particular office procedures. These documents are important because they result in policies being applied consistently throughout the organisation and remove any doubt as to the particular provisions which apply.
The contract of employment is accordingly an essential component of the employment relationship and careful consideration should be given to the drafting of a written contract which can be tailored to the individual business. In that way the business secures maximum protection and the employee knows precisely the terms governing the employment.
If you are an employee in need of advice: please note that our law firm does not tend to act for individual employees. We generally act for organisations only. You can contact the Law Society if you need help finding a solicitor or if you want additional guidance on your rights, you could try ACAS, which runs a helpline on 08457 47 47 47 to answer employment questions in confidence.