What is an employment contract and what should be included?
A contract of employment comes into effect the moment that a person agrees to work for an employer. In accepting the offer of a job and by starting work in return for pay, the employee is also agreeing to the terms and conditions attached to that job.
The contract of employment does not have to be written down; it can be verbal.
An employer must, however, provide the employee with a written statement that sets out the main particulars of their employment. The employee must receive this written statement within two months of the date they start work.
The written statement does not constitute a contract of employment, but its contents can be used to indicate the terms and conditions that apply to the employee and employer.
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Contracts of employment
A contract of employment can be in written form or it can be verbal or implied. The job advertisement, a letter offering the job and the staff rules handbook can all help to establish the terms of a contract of employment.
A verbal contract is considered by the law to be as valid as a written contract, even if its conditions may be less easy to prove.
An employer can, of course, issue a written contract of employment. In doing so, however, the employer should make it clear within the contract that it supersedes any prior conversations or existing letters between the employer and the employee. The employee will need to agree to this.
A contract of employment will set out the terms and conditions that have been specifically agreed between the employer and the employee. Additionally, it can include what are known as implied terms. These might cover the responsibility of the employer to ensure that the working environment is safe and healthy for the employees; the responsibility of the employee to behave honestly and to give loyal service; and any terms that are fundamental to ensuring the contract is meaningful, such as the employee possessing the qualifications necessary to meet the obligations of their employment.
In order to comply with employment law, an employer will need to include or observe certain statutory terms. Most notably, a contract of employment must include the right of the employee to earn at least the National Minimum Wage and to take paid holidays.
Under the Employment Rights Act 1996, an employer must supply any employee who works for them for longer than one month with a written statement of employment. The statement must be issued to the employee within two months of the start date of their employment, and ideally on the first day. In the case of employees who are to be sent abroad to work, they must receive their statement within one month or before they leave, whichever is the earliest.
The statement should include the main terms and conditions of their employment, and must state them in full. It is not enough, in the case of most of the terms, simply to point the employee in the direction of a secondary document such as a company handbook.
It needs to be written in simple, plain English, and should avoid jargon or difficult, technical terminology.
Producing the written statement
A written statement can be created as a single document or as separate documents, although it usually makes organisational sense to bring all the information together in just the one document. If it is produced in separate parts, the employer must ensure that the employee receives all the parts within the two-month period.
Contents of the written statement
However the written statement is produced, certain details must be collated in a single document. These make up what is known as the ‘principal’ statement and it will provide specific information. This document, if it is separate from the other parts of the statement, must contain: the name of the company or business, and its trading name if this is different, that employs the employee; the address at which the employee works; the name of the employee; the employee’s job title or job description; the date from which the employee commenced working; the date from which the employee commenced working for a former employee where that is regarded as continuous with their present employment; how much the employee is paid and when; the employee’s working hours; the amount of holiday which the employee can take and the holiday pay to which they are entitled; and details of any collective agreements that have a bearing on the employee’s conditions of employment.
The rest of the written statement, whether it forms a single document or is supplied in parts, needs to cover a number of other points.
It must set out the terms on sickness or injury, as well as the pay arrangements that apply in the case of sickness or injury.
It must detail the period of employment, indicating whether the job is permanent or temporary; it must state the end date to a fixed-term contract if that is the basis of the employment.
It must set out the length of notice that the employer and employee must give each other.
It must include particular terms that apply to employees who go abroad to work for longer than one month. In such cases, the employee should be told: how long they are to be employed abroad; the currency they will be paid in; the extra benefits that accrue as a result of working abroad; and the conditions that apply to their return to the UK.
It must cover pensions and pension schemes, and must say whether a contracting out certificate under the Social Security Pensions Act is in force.
It must provide information on the employer’s disciplinary and grievance procedures, including the name of the person to whom the employee should go in the event of a grievance arising and a description of how the employee should present their grievance. This section should also set out the employer’s disciplinary rules. The employee should be told to whom they must go if they are not happy with the outcome of any disciplinary or grievance procedure and how they should present their case.
Although the written statement should include a full account of the terms and conditions, it can refer the employee to other documents on specific issues. As well as particulars about disciplinary and grievance procedures, details on sick pay terms and pension entitlements can be set out elsewhere, provided the information is easily accessible.
Since this article is only a brief, outline guide, and is in no respect definitive, any employer intending to draw up a contract of employment or a written statement should seek professional advice if they are unsure as to its exact content.
Changing contracts of employment
A business sometimes may wish to amend the contract of employment it has with an employee or its employees.
This may be the result of a change in the trading or economic position of the business. As a consequence, the business may wish to adjust the agreement it has with employees on such matters as pay, working time, the allocation of duties and responsibilities, and the location of the workplace.
Before it contemplates introducing changes to contracts of employment, a business must be fully aware of what is contained in the existing agreements. It will then be best placed to consider what changes to introduce and how they can be implemented.
It isn’t always the employer who asks for amendments to the contract of employment. An employee may also wish to change the agreement, perhaps in order to adopt a more flexible way of working or to secure a pay increase.
In seeking to change an existing contract of employment, it is essential that an employer consults with staff beforehand. It is equally important that any changes are put in writing.
The reason for moving with great caution is that an employer runs the risk of legal action if the changes are not handled properly.
The moment an employee begins working for an employer, a contract of employment exists between them irrespective of whether it has been set down in writing.
Any employee who works for an employer for longer than one month must be given a written statement that includes the main details about their employment. Although not a contract, the written statement will be taken as evidence of the terms of the contract.
A contract will have two sorts of terms. It will have express terms, which have been specifically agreed to, either in writing or verbally, by both the employer and the employee. These terms will usually be contained in the letter offering the job or in the written statement. They may also be taken from other sources, such as company handbooks or any collective agreements between the employer and their employees, and included in a written contract.
It will also have implied terms, which are often the givens of employment and do not require detailing. It is an implied term that when an employee is offered a job, they will not commit a crime against that employer. And it is implied that an employer will provide their employees with a workplace that is safe.
Some contracts or written statements will contain express terms that cover changes to working conditions. Typically, such terms might involve asking employees to work overtime or take on additional tasks during particularly busy periods of business. Employers, however, must avoid using terms like these to introduce far-reaching or major changes to the contract of employment. Otherwise, an employee could claim that the contract has been terminated and seek legal redress.
A business must consult with its employees about any proposed changes to the contracts of employment and reach an agreement with them.
This can be done on a collective basis where there is a trades union that represents the employees. Or the consultation can be carried out directly on a group or an individual basis.
In both cases, the employer must offer a full and detailed explanation for the proposed changes. Employees should be given the information they need in advance of the meeting so that they can ask questions of the employer. The employer will be expected to deal with those questions in the meeting.
The employer must also weigh the effects that the changes will have on individual employees.
Wherever possible, details of the consultation should be set out in writing.
Agreements and new contracts
The objective of the consultation is to reach an agreement on the proposed changes to the contract or contracts.
If, however, the discussions do not produce an agreement with an employee or employees over changes to their contract, the employer should try to negotiate a new contract. What an employer cannot do is simply insist on the changes. Should they do so, they could be in breach of contract and the employee could claim damages at an employment tribunal.
Where there is a complete failure to reach an agreement, and a new contract cannot be negotiated, an employer may terminate the existing contract so long as they give the statutory period of notice or the period of notice that is agreed in the contract. They may then offer a new contract that includes the changes. The employee, however, is under no obligation to accept it.
If the employee does not accept the revised contract, and if they believe that they have been treated unfairly and they have a year’s continuous employment with the employer, then they may claim for unfair dismissal.
Should the employee take the case to an employment tribunal, it would be the responsibility of the tribunal to decide if the dismissal was fair or not. For the tribunal to accept the dismissal as fair, the employer would need to show that the changes to the contract were made for compelling business reasons and that they observed a full and proper process of consultation and negotiation.
Employees who do not come to an agreement on a particularly important question, such as change to pay, can also resign and claim unfair constructive dismissal at an employment tribunal.
An employer must provide employees who have been working for them for one month with a written statement. When drawing up the written statement, however, a business cannot change the terms of the contract that had been agreed when the employee was offered the job.
Amending contracts of employment can be a complex matter. This is only an outline guide to the subject, and any employer contemplating introducing changes should consult with a professional adviser if they want to be sure they are not running the risk of facing legal claims from employees who believe they have been treated unfairly.
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If you need further help with employment contracts and other advice please contact CloudCo Accountancy Group. We are experts in small business accounting and very experienced in this area.