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What is an employment contract?
An employment contract is made between an employer and employee, which includes the terms of the contract and sets out the:
- employment conditions
- rights
- responsibilities
- duties
Whilst certain terms of a verbal contract are legally binding and effective from the moment a person accepts a job offer, a written contract of employment protects both the employer and employee against potential disputes with regards to the terms of the employment. Moreover, working without a contract creates uncertainty, even if the main terms of the employment were agreed orally.
It is a legal requirement in the UK for employer's to provide a written statement of the terms of employment to the employee, within the first 2 months of the employment commencing. Although this is not a contract of employment it summarises the essential key terms of employment.
If the employment contract is governed by the laws of England and Wales, there are several implied terms such as providing employees with:
- certain statutory rights such as statutory sick pay
- minimum notice periods
- minimum holiday entitlements
- national minimum wage and limits on the number of hours an employee can work each week
What are the risks for an employer?
Hiring a person without an employment contract can pose certain risks to the employer, include legal action or penalisation from the Employment Tribunal.
Disciplinary action
By failing to provide employees with an employment contract, employers may face disciplinary action from employment tribunals. This is costly, time consuming and can have reputational damage for the business. The employee may decide to raise concerns with an Employment Tribunal if an employer fails to provide the requisite information regarding the terms of the employment.
Penalisation
Where an employer is found to have failed to provide the employee with their contract terms, the Employment Tribunal may penalise the employer for non-compliance and the employee may be awarded damages. In some cases, this could result in the employer paying a large sum of money to an employee which puts the employer in an uncertain financial position.
Technically, there is no requirement for an employee to have a written statement of terms so they can work without a contract. However, it does carry some risks for them.
What are the risks for an employee?
If an employee does not have an employment contract in place it does not guarantee their job security and it may put them at risk of unfair dismissal.
Salary and job title uncertainty
Without a contract in place, there is no guarantee that the employer will pay their employee.
If there is no written record of a contract or the job requirements it can put an employee in a precarious position if the employer asks them to do something outside of their job description or tries to change the terms of the employment, such as working hours or salary.
Inexistence of contract terms or working relationship
If there is no written record of the terms of the employment, it makes it harder to prove the existence of certain terms if action is taken against the employer.
The lack of a contract can also prevent the employment relationship being legally binding between both the employer and the employee.
Unfair dismissal
Another risk of working without a contract is that an employee is not protected from unfair dismissal. This means that an employer could terminate a contract at any time, for any reason and without guaranteed notice or compensation.
If an employee is dismissed they can seek help from a third party. They must have worked for their employer for a minimum period before they qualify for the right to claim unfair dismissal at a tribunal. In the UK the qualifying period is 2 years if they joined an employer on or after 6 April 2012, or 1 year if it was before 6 April 2012.
Employee rights
The law prescribes the minimum an employer must do, the employer may choose to offer them more than what is recommended under employment law. Where an employer offers less than the law prescribes, a person may seek legal advice in order to ascertain their rights under employment law and find a solution prior to commencing a claim with an Employment Tribunal.
In the UK, workers still have rights even without a written contract. For example, a national minimum wage and paid holiday entitlement. Without a contract, it can be more difficult for an employee to prove that they are entitled.
General guidance on challenging contract terms
There are various ways an employee can challenge their entitlements and contract terms.
The government guidance note is useful for individuals who have received a written statement and is not happy with the terms. It is advised they can:
- Try to solve the problem with the employer informally;
- Take out a grievance against the employer;
- Take the case to an Employment Tribunal.
The employment tribunal will then decide what the employment particulars should have been.
People can also reach out to ACAS, which is an organisation that provides employees and employers with free and impartial advice on workplace rights, rules and best practice.
What is a written statement of terms?
For people that do receive their contract, they can expect to receive written statement of the terms of employment which should include details of the implied terms:
- employer's name and address;
- start date and end date (if the agreement is a fixed-term);
- job title/ brief description of role;
- place of work/working environment and whether they will be required to relocate;
- pay details (the amount e.g. annual salary or hourly based on national minimum wage, how often e.g. monthly and when e.g. 28th of each month);
- hours of work/days of work (e.g. 9am-5:30pm Mon-Fri);
- the amount of holiday pay;
- bonus pay (if applicable);
- holiday entitlement/annual leave (including details of how it is calculated if the employee joins mid-year or when the employee leaves);
- sick pay and sick leave;
- other paid leave (for example maternity and paternity leave and pay);
- benefits including redundancy pay;
- other benefits (including non-contractual benefits);
- notice period each party is required to give;
- probation period if applicable (duration and conditions of the probationary period);
- work abroad requirements (how long, payment currency, additional benefits and terms relating to their return to the UK);
- training the employee may be required to complete if applicable;
- pension and pension schemes;
- any collective agreement with a trade union that affects the employment;
- any other right to non-compulsory training provided by the employer;
- details of the employer's staff handbook; and
- disciplinary and grievance procedures.
What clauses does the contract include?
The written statement of terms may also be provided in the form of an employment contract. An employment contract contains a written statement of the employment rights, obligations and benefits an employee may be entitled to. It is recommended employers have a comprehensive written employment contract in place. Alongside the terms above, it also includes clauses such as:
- Confidentiality
- Intellectual property
- Restrictive covenants
- Contractual sick pay
- Garden leave
An employer may also include details of policies, outside interests and expenses alongside other important matters of employment. A detailed contract of employment ensures the employee understands the nature of the employment, the business and what is expected of the employee.
Confidentiality clauses in written contracts safeguard the employer's financial and business interests and ensure the employee is subject to maintaining confidentiality over sensitive information disclosed during the course of their employment.
Similarly Intellectual Property clauses ensure any Intellectual Property created by the employee during the course of employment belongs to the employer (which is the general position under English law).
About Legislate
When hiring, it's important to have legally sound employment contracts in place to protect your company and employees. With Legislate, you can easily tailor lawyer approved agreements to suit your needs, and easily extract relevant data from these agreements. Plus, our platform allows for electronic signing, making the contract process more efficient for both you and your employees. Book a demo or sign up today.
The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.
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