The deceptively short definition of a contract of employment as “a contract of service or apprenticeship” in s.230(1) of the Employment Rights Act 1996 is very much a starting point to understanding what a contract of employment is and what it means to the workplace.
Put loosely, a contract of employment is a collection of promises (terms and conditions) between the employer and the employee – for example an employee promises to perform duties and in return, the employer promises to pay the employee.
Many of the terms and conditions in an employment contract will be underpinned by statute, often in the form of a minimum entitlement. These entitlements are often developed in an employment contract, usually to the mutual benefit of both employer and employee. For example, it may be agreed that an employer will offer additional days of paid annual leave above the minimum set out in the Working Time Regulations 1998, while also agreeing that employees need to give longer periods of notice to request that annual leave.
Contracts of employment are usually best recorded in writing, but they do not rely on a piece of paper to exist – they can exist orally too. They can also start out (or be partially covered) in writing but also encompass other terms too. Also, as discussed later, simply calling (or not calling) an agreement a ‘contract of employment’ is no guarantee of what the employment relationship is – the reality of the way the employment relationship is practised has a very important bearing too.
So what purpose do contracts of employment serve? When they are well-documented and mutually beneficial, they provide clarity and reassurance around the working relationship and help to manage the expectations of both employer and employee. They can help provide information relating to everyday matters (like where an employee is expected to work) and also references to less frequent but crucial processes (like disciplinary and grievance procedures). They also provide a good point of reference for employers and employees in periods of change, such as in relocation exercises, business expansions or Transfer of Undertakings (Protection of Employment) (TUPE) transfers.
Establishing a contract
There are necessary requirements needed to bring about the formation of a contract of employment.
There must be an agreement between employer and employee, usually dealt with by one party making an offer of an employment contract and the other party accepting this offer. It’s worth keeping in mind that if a counter-offer is made, this means the original offer has not been accepted.
The agreement can only be made with the intention of creating legal relations - this means that the agreement and the terms themselves must have been intended to be legally binding by employer and employee.
The relationship must involve consideration, which means something of benefit or value must pass between employer and employee (often this is work in return for pay).
Although not strictly the same as a contract of employment, an employer must also provide and update a ‘written statement of employment particulars’. So long as all the particulars are covered, a written contract of employment may meet this requirement in itself. It must include:
The name of the employer and employee.
The date employment and continuous employment started.
The job location/locations.
Pay and whether it’s weekly, monthly pay etc.
Job description/job title.
Details of any collective agreements that directly affect the employee’s conditions of employment.
Sick leave and pay entitlements.
Pensions and pension schemes.
Disciplinary and grievance procedures.
Disciplinary and grievance appeals procedures.
Where policies and handbooks explain or expand on these details, they will be seen to form part of the contract and must therefore be readily accessible by employees.
What should and should not be included?
Beyond the essentials, an employer and employee are free to expressly agree terms and conditions that work best for them, provided they are not illegal in nature, do not sign away employment rights (except in some very specific situations where legislation allows for this) and are, in fact, meaningful enough to be enforceable. What terms and conditions are needed in a contract can vary considerably with compared to other contracts, even in the same industry or sector. A good example of an express term would be a mobility clause detailing how and when a receptionist may need to provide work at a number of different surgeries.
It is worth keeping in mind that it is unlikely that any written or oral contract of employment will expressly specify all the terms and conditions of employment. An unspecified term can still be taken to have been agreed depending on how the contract is entered into or carried out. This is known as an ‘implied’ term.
Examples of implied terms that may depend on the circumstances involved include the need for a driving license or identifying the place of work (if for some reason it has not been specified). Examples of implied terms that are almost universally applicable to any contract of employment include duties for the employee to render faithful service and to obey lawful and reasonable orders and for the employer to pay agreed wages and provide a safe workplace.
Implied terms are sometimes disputed, which means they can become a matter for a court to decide upon. The test at the courts is not whether the term is reasonable or fair, but whether or not the employer and employee intended it to be included in their agreement. However, it is often good practice for employer and employee to try and reach their own agreement rather than let matters escalate.
When should the contract of employment be updated?
There are different ‘triggers’ to be aware of that might bring about the need for an update to a contract of employment which could include:
New legislation, statute or case law. Signing up to the Acas newsletter at www.acas.org.uk/subscribe can help you here.
A desire/need for change by the employer. For example, a move to new premises, or amended opening hours.
A desire/need for change by the employee. For example, they have made a flexible working request.
A need to correct an error/oversight or to reflect a change that both employer and employee agree has taken place and is not currently reflected in the written contract.
The employee is promoted or changes roles.
Change is a regular occurrence in the workplace. Where any of the above lead to the need to vary the contract, employers are well within their rights to pursue that change but need to exercise caution and take appropriate consultation measures with individuals and any workplace representatives or recognised trade unions.