A contract of employment is a legally binding agreement between an employer and employee. Most employment contracts are a mixture of ‘express’ and ‘implied’ terms, some of which will be written and some of which may be verbal, although certain key terms of employment should be summarised in writing (see written statements below).

Employment relationships for employees working internationally for global employers are complex and typically involve the law of the country where the employee usually works. However, the parties can choose the law that will govern their relationship using an express clause to determine the chosen legal framework. A choice of jurisdiction clause will also be needed to indicate which country will determine any contractual dispute. Some countries, like the UK, have fundamental employment laws limiting the parties' contractual arrangements, while some other countries have very few employment or labour laws.

Express terms

Express terms are stated in writing or given verbally. Written express terms are not restricted to the initial employment contract but can include other documents, such as email variations or a staff handbook, unless the provisions are deemed not to have contractual effect.

Before drafting express terms, employers need to be familiar with the relevant law, such as employee status, the rules governing written particulars, flexible working, parental leave and working hours. The express terms must comply with any minimum legal standards such as the right to paid holidays and the right to daily and weekly rest breaks.

All employees and workers have a statutory right to a written statement of particulars of employment setting out certain key employment terms on their first day of work.

Implied terms

Terms can also be implied in contracts, for example if the term is:

• Incorporated by collective agreements (agreements with trade unions recognised by the employer).
• Incorporated by workforce agreements (for example, agreements with the whole workforce covering issues such as entitlement to breaks).
• Incorporated by statute.
• Incorporated into individual contracts by custom over a period of time.
• So obvious that the term is assumed to have been implied.
• Needed to give 'business efficacy’ to the contract (that is, to make the contract work properly).

Examples of terms that are implied into a contract of employment include:

• A duty of mutual trust and confidence between the employer and employee.
• The employer’s duty to provide a safe system of work and safe workplace.
• The right to receive at least the national minimum wage or living wage (implied by statute).
• The right to a minimum period of notice (implied by statute).
• Equality relating to men and women’s pay (implied by statute).

As many terms as possible should be clearly set out in writing and given to the new employee before or when they start the job.

A contract of employment is in many respects no different from any other contract. As such, it's governed by contract law, which means that there needs to be:

• An offer of employment by the employer, which should be clear and unambiguous and may be conditional.
• Acceptance of that offer by the employee.
• Consideration between the parties, for example the work done by the employee in return for the wages paid by the employer.
• An intention to create a legally binding arrangement.

However, because the employer is often the more powerful party in the arrangement, the law does require some extra aspects, such as a minimum wage, or the right not be unfairly dismissed. Our Terms and conditions of employment Q&As for CIPD members have more detail on contractual matters.

UK law currently recognises three main types of employment status:

• employee
• worker
• self-employed.

An individual's employment rights depend upon whether they are an employee or a worker. (The self-employed have very few employment rights other than the provisions agreed between the parties). In the UK, the term ‘employee’ is defined by the Employment Rights Act 1996 as an individual who has entered into or works under a contract of service or apprenticeship. As this definition requires some interpretation, case law has evolved various tests to decide whether a person is an employee. Find out more in our factsheet on employment status. CIPD members can find more detail in our Employee status law Q&As.

Employers must make the relationship clear at the outset, not least because employees have more rights in law than workers.

Zero-hours contracts is not a legal term, but means a contract involving an employee or a worker in which there is no set minimum number of hours.

Both workers and employees, whether part or full-time, are entitled to receive a written statement setting out the main elements of their employment from day one of their employment. 

Some information must be included in one document while other information can be delivered separately.

Items to be included in the main document:

• Names of the employer and employee or worker.
• Date when employment or engagement began.
• Date on which continuous employment began (employees only).
• Length of notice the employee or worker is required to give and receive to terminate the contract.
• Scale or rate of remuneration, or the method of calculating the remuneration.
• Intervals at which remuneration is paid: weekly, monthly or at other specified intervals.
• Terms and conditions relating to hours and days of work, including those relating to normal working hours, days of the week and whether hours or days are variable (and, if so, how they vary).
• Terms and conditions relating to entitlement to paid holidays, including public holidays and holiday pay, in such a manner as to allow them to be precisely calculated.
• Job title or a brief description of the type of work the employee or worker is to do.
• Place of work and address of employer, or an indication that an employee or worker is required or permitted to work at various locations.
• Any other benefits (including benefits clearly specified as non-contractual) which are not covered elsewhere in the written statement.
• Details of non-permanent employment or engagement e.g. period of fixed-term contract.
• If the employee or worker is required to work outside the UK for over a month: arrangements for working outside the UK including period, currency of pay, additional benefits and return terms.
• Details of any probationary period.
• Details of training which the employer requires the worker to complete even if the employer does not pay for it.

Items that can be provided in a supplementary statement:

• Terms and conditions relating to incapacity for work due to sickness or injury, including any provision for sick leave and pay.
• Terms and conditions relating to occupational pensions and pension schemes (can be provided within two months).
• Any collective agreements which directly affect the terms and conditions of employment, including who made the agreements (can be provided within two months).
• Where the individual is required to work outside the UK for a period of one month or more, details of the time they are to work abroad, the currency they will be paid in, any additional remuneration payable and any benefits provided by reason of working outside the UK and any terms relating to their return to the UK.
• Any other training entitlement (can be provided within 2 months).
• Disciplinary and grievance procedures (can be provided within 2 months).
• Any other paid leave.

Where there are no particulars to be entered under any of these headings, that fact should be stated, and all the above information should be given to the employee or worker. If an employer fails to provide a written statement, in any later tribunal claim for unfair dismissal for example, the employee may be awarded an additional two to four weeks’ pay (subject to a capped amount) for the failure to provide the written statement.

While the Employment Rights Act 1996 states the items that must be included in the written statement of particulars, employers can refer to their employee handbook or other policies for precise details of issues such as:

• Documents relating to disciplinary and grievance rules and procedures.
• Documents relating to sickness and pensions.
• Collective agreements.

The written statement may additionally contain clauses that an employer wishes to rely on such as restrictive covenants or rules about social media use and company equipment. Where an offer letter or written contract sets out the main employment terms and conditions, this can count as the written statement.

Varying existing contractual terms normally requires agreement.

Although some minor matters can be changed without the employee’s agreement, most aspects cannot. Examples of things that can be changed include non-contractual policies where these have been carefully drafted to ensure there is no binding contractual effect.

Organisations should be cautious about trying to vary contractual terms. If changes are a fundamental breach of contract, employees can resign and bring a tribunal claim. 

Some employment contracts include an express term which states that a particular term is variable by the employer. Such clauses may encourage employees to assume that the changes are permissible, but even an express clause will not guarantee that the employer can significantly vary contractual terms to the employee’s detriment without agreement.

Employers who wish to alter existing contractual terms have three main options:

1. Agree the changes with the employee after thorough consultation. A small incentive may be offered to encourage acceptance. This is the safest course of action.

2. Make changes unilaterally, but even where there is a pressing business need to impose the changes, this may be risky. See more on dismissal procedures.

3. Terminate the employee’s contract by notice and offer them re-engagement on new terms and conditions. Note that for processes starting on or after July 2024, a new statutory Code of Practice on dismissal and reengagement will be legally enforceable across England, Wales and Scotland. See more in The CIPD's guide on 'fire and rehire' and why it should be avoided, unless no other option is available. 

Any variations should be confirmed in writing within one month of the changes taking place.

Additional points to consider

• Changes following a transfer of undertakings can only be made for an economic, technical or organisational reason if connected to the transfer, not merely to harmonise terms across the workforce.

• While there is no legal requirement for employees to sign their written statement, it makes it easier for an employer to rely on any clauses if they've done so.

• Where employers wish clauses to be non-contractual, they should state this clearly when inserting them to ensure they cannot be relied on as implied by custom and practice.

• Certain clauses such as mobility clauses or restrictive covenants need to be drawn up with particular care to ensure they can be relied on in the future. The Government announced in 2023 that it would limit the length of non-compete clauses to three months in both employment and 'worker' contracts including non-compete clauses imposed on independent contractors. Further details of these proposals are awaited.

• Employees’ requests to change their terms and conditions must be considered, in line with recent changes to the flexible working legislation coming into effect in 2024, following the Employee Relations (Flexible Working) Act 2023. This makes a number of changes to flexible working requests. The right to request flexible working has not yet become a day one right, however the requirement for employees to have worked for the same employer for at least 26 weeks is expected to be removed.

Contacts

Acas - Employment contracts

Acas - Templates for written terms of employment

GOV.UK - Employment contracts

GOV.UK - Contract types and employer responsibilities

Books and reports

Barnett, D. (2020) Changing terms and conditions. (Employment Law Library 6). London: Nielsen.

Howard, G. (2017) Drafting employment contracts. 3rd ed. London: Law Society.

Incomes Data Services. (2014) Contracts of employment. Employment law handbooks. London: IDS.

Journal articles

Brady, M. and Briody, A. (2916/7) Strategic use of temporary employment contracts as real options. Journal of General Management. Vol 42, No 2, Winter. pp31-55.

Christou, R. (2023) Updating employment contracts to keep pace with the changing legal landscape. People Management (online). 17 April.

Dilling, M. (2021) How to deal with contracts affected by Covid. People Management (online). 22 February.

Kearsey, E. (2019) Top employment contract mistakes. People Management (online). 2 August.

Maddocks, R. (2018) Time to spring clean your employment contracts. People Management (online). 18 April.

Penman, A. (2023) Should businesses be concerned about non-compete restrictions being limited to three months? People Management (online). 15 September.

CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.

Members and People Management subscribers can see articles on the People Management website.