Contracts of Employment - Simply Put!

Introduction

In the Marstan Guide HR Management - Simply Put!, we explained that recruitment and performance management were two of the fundamental activities for managing people. Contracts of Employment are an essential component for both of these activities.

What is a Contract of Employment?

At first glance, a Contract of Employment sounds like a complex legal document and in some instances, this is appropriate.

However, Simply Put a Contract of Employment is merely an agreement between an employer and an employee. In this agreement, the Employee agrees to provide a service to the Employer who agrees to pay the Employee, usually in the form of wages or a salary (and, in some cases, other benefits too).

Are Contracts of Employment compulsory?

No, but a Written Statement is compulsory. In the UK, employment law demands that the Employer provide a Written Statement within eight weeks of an employee starting their job. Failure to comply with this law can lead to a fine from an Industrial Tribunal, often in the order of two to four weeks of salary. (Employment law varies from country to country but most follow similar principles of good practice.)

What should be included in the Written Statement?

The following should be included in a Written Statement. They represent the basic legal terms:

1. Employee’s name and address
2. Job title
3. Start date for the employment
4. Duration of the employment (if not intended to be a permanent position)
5. Place of work or details of mobility requirements (such as working on a customer’s site)
6. Hours of work
7. Wage details
8. Holiday entitlement
9. Details of pension (or access to a stakeholder pension plan)
10. Company’s policy on collective agreements
11. Grievance procedure
12. Disciplinary procedure
13. The law governing the contract

Does the Written Statement have to be in any particular form?

No, it can be in the form of a letter.

Is there any difference between a Written Statement and a formal Contract of Employment?

The main difference is in the level of details. The Written Statement is there to provide the minimum under the law. A Contract of Employment includes more detail to govern the relationship between the Employer and the Employee.

Companies with experience of employing people tend to provide their new recruits with a Contract of Employment in the first instance to avoid a two-stage process.

What additional items would be covered in a Contract of Employment?

A Contract of Employment can include as much detail as required to protect the Employer and to manage the expectations of the Employee.

It sets out the rights and responsibilities for both parties. Typical examples include:

1. Longer notice periods – it is possible to extend notice periods beyond the statutory minimum. This protects the company against sudden departure of an employee and it also protects the Employee if they are given notice of termination by the Employer.
2. The manner in which accrued (un-taken) holiday days are dealt with before the end of the holiday year.
3. A statement about flexibility, because it is difficult to predict all requirements in a job description and the number of hours the Employee is expected to reasonably deliver.
4. Probationary periods during which either party can terminate the contract (with or without notice).

There is considerable variation in the staff benefits, rights or responsibilities included in employment contracts. It is important that each Company considers carefully the terms which are right for their business and their staff.

It is strongly recommended that a contract of employment is only implemented after taking the advice of a lawyer or an HR professional.

What needs to be in place to make a Contract of Employment enforceable?

The following factors must be in place to make a Contract of Employment enforceable.

1. An offer from the Employer – this can be orally or (preferably) in writing.
2. An acceptance by the Employee – orally or in writing.
3. Proper ‘consideration’ for the exchange – i.e. both parties receive a benefit. For example the Employer receives a service and the Employee receives payment.
4. Clear terms. It is important that the terms of employment are set out clearly and in order to do this, they should be very specific and in writing. Failure to do this leads to differing expectations and will leave room for interpretation and disputes. (An employment tribunal, in cases of ambiguity, is more likely to take the side of the Employee).
5. Capacity. Each party must be capable of fulfilling their obligations.

If a contract can be made orally, why have a Written Contract?

It is considerably better to have a written contract, agreed and signed by both parties. The written terms (or Express terms) should be clear and this means that the rights of each party are protected.

What if there are any omissions from the Contract of Employment?

Clearly, every effort should be made to include fundamental terms in the contract. However, there is always the opportunity for flexibility from both parties. Changes to a contract of employment must, by law, be subject to formal consultation with employees and when there are economic, technical or operational reasons for making such a change. For example:

• Economic – there is a need to downsize or restructure due to financial difficulties.
• Technical – the company has invested in new plant which requires a different shift pattern or skills
• Operational – a new client base requires customer service teams to be available in the evening.

There are other matters which have an impact on the contractual relationship between an employer and an employee:

• Implied terms – These are terms which have not been included in the contract but should be obvious to both parties. For example, the right of the Employee to work in a safe environment or the need for a driver to have a driving licence.
• Custom and Practice – if you do something over a significant period, it might be referred to as custom and practice and become an implied term of contract. For example, if you regularly pay sick pay or allow changes to working hours, they may become implied terms even though the written contract says something different.
• Collective agreements – usually where an employer agrees terms with a trade union which might supersede the terms of the individual contract.

Does anything else affect Contracts of Employment?

It is important to remember that, whilst a contract of employment is there to protect the interests of both parties, the most important thing is the way in which the relationship between an employer and employee is managed on a day to day basis.

It is important to have mutual trust and confidence.

This means that an employer must recognise that the basis of this relationship begins to take shape from the moment that a job is advertised. This is because the Employer is starting to create a picture about the terms and conditions under which they may be working.

Equally, anything said at an interview may form part of an oral contract and it is important that both parties are accurate. There are certain safeguards which can be implemented. For example, an offer of employment may be conditional upon receiving suitable references from an employee’s previous employers.

Contracts of employment are often supported by:

• Staff handbooks
• HR policies
• Working procedures and practices