CIPD - Contracts of employment

Employment law

September 2007

This factsheet gives introductory guidance. It:

introduces contracts of employment and the legal position
outlines the key types of contracts
summarises the key requirements of the written statement of particulars
provides some action points to consider when drafting or amending contracts.

What constitutes a contract of employment?

When a person starts a job, they will agree to work under certain terms and conditions in return for the remuneration and benefits the employer will pay them for carrying out that job.

A ‘contract of employment’ is defined by the Employment Rights Act 1996 as a contract of service or apprenticeship, whether express (that is, actually stated) or implied, and (if it is express) whether oral or in writing.

Express terms

Expressly stated terms can be:

in writing
verbal
incorporated by collective agreements - agreements with trade unions recognised by the employer
incorporated by workforce agreements - for example, agreements with the whole workforce covering breaks
incorporated by statute.

In many cases, the terms must meet minimum standards required by law, in areas such as:

the right to paid holidays
the right to receive at least the national minimum wage
the right to receive statutory notice of termination
the right to daily and weekly rest breaks.

Any employee who has been employed for one month or more has the statutory right to be given a written statement of particulars of employment, and the employee should receive this by the end of his or her second month in the job. What this should contain is covered in more detail below.

The written statement must contain specific information laid down in the Employment Rights Act 1996 but it may additionally contain other clauses that an employer wishes to rely on.

Additional express terms might be contained in an employee handbook or in collective or workforce agreements.

Implied terms

These are terms that that are implied into a contract of employment and include:

a duty of mutual trust and confidence between the employer and employee
the employer’s duty to pay agreed wages
the employer’s duty to provide a safe system of work and safe workplace.

To avoid uncertainty or dispute between the employer and the employee about the terms of the contract of employment, it is advisable that as many terms as possible are set out in writing, and are issued to the employee prior to, or upon, commencement of employment.

The legal position

A contract of employment is in many respects no different from any other form of contract that two parties might enter into. As such, it is 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 - the work done by the employee in return for the wages paid by the employer.

However, over many years, governments have sought to increase protection for employees both by prescribing certain minimum standards that contracts of employment must contain and by introducing additional laws that govern the employment relationship, regardless of what might be in the employee’s contract of employment.

The main piece of legislation covering terms and conditions is the Employment Rights Act 1996 which gives employees the statutory right to receive a written statement and details of what this should include.

Many other pieces of employment legislation may affect an employee’s terms and conditions of employment. The provisions in such legislation will automatically override any provision in a contract where they are more favourable than any contract clause.

CIPD members can see more information on the legislation and the legal aspects of contracts in our FAQ on Terms and conditions of employment.

Go to our FAQ on Terms and conditions of employment

Types of contract

A contract of employment only applies where there is an employer/employee relationship. There is a distinction between a contract of service, which is a contract of employment and a contract for services, which might apply to a subcontractor or freelance worker.

This factsheet focuses on the contract of service. To decide whether a person is an employee, working under a contract of service, there are a number of tests that are used. These include:

mutuality of obligation - does the employer have to provide work, and does the worker have to take work that is offered?
control - does the employer control how the worker does the work, and do the employer’s disciplinary procedures apply to the worker?
substitution - can the worker send another person to do work for the employer on their behalf?

It is important that employers make the relationship clear at the outset, not least because employees have many more rights in law than non-employees.

Certain workers who are not employees may nonetheless have some protection in law. Recent legislation, such as the Working Time Regulations 1998 and the National Minimum Wage Act 1998 give rights to all workers who perform work personally, even though these people might not be employees and do not qualify for other protection given to employees. CIPD members can see more in our law FAQ on employee status.

Go to our FAQ on Employee status

The written statement of particulars

Section 1-7B of the Employment Rights Act 1996, as amended by the Employment Act 2002, sets out the essential elements that must be detailed in the written statement of particulars of employment. The statement can be divided into two parts – the first part must be included in one document, the other information can be delivered in instalments.

Items to be included in the main document:

names of the employer and employee
date when employment began
date on which the employee’s continuous employment began
scale or rate of remuneration or the method of calculating the remuneration
intervals at which remuneration is paid, that is, weekly, monthly or other specified intervals
terms and conditions relating to hours of work, including any terms and conditions relating to normal working hours
terms and conditions relating to entitlement to 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 is employed to do
place of work or an indication that an employee is required or permitted to work at various locations.

Items that can be provided in instalments:

terms and conditions relating to incapacity for work due to sickness or injury, including any provision for sick pay
terms and conditions relating to pensions and pension schemes
length of notice the employee is required to give and receive to terminate the contract
where the employment is not intended to be permanent, the length it is intended to last, or the end date if it is for a fixed term
any collective agreements, which directly affect the terms and conditions of employment, including where the employer is not a party, the persons by whom they were made
where the employee 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 the employee’s return to the UK. More information about employee working overseas can be seen in our factsheet on international assignments.

Go to our factsheet on Managing international assignments

Where there are no particulars to be entered under any of these headings, then that fact should be stated, and all the above information should be given to the employee.

While the Employment Rights Act 1996 states certain items that must be included in the written statement of particulars, to include every possibility or situation would make this cumbersome, so employers can refer their employees 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
other terms that are not mandatory terms (for example, private health care, overtime, holiday arrangements, retirement).

Where an engagement or offer letter sets out the main terms and conditions of employment that would have been included in the written statement, then this can be relied on as satisfying the requirements of Schedule 1 of the Employment Rights Act.

There is a legal obligation to provide a written statement of particulars within two months of an employee taking up employment, although it can be given in instalments over the two months. Where an employer does not provide such a statement (or provides an incomplete or inaccurate statement) then an employee may complain to an employment tribunal while still in employment, or for up to three months after employment has ended.

There are exceptions to the requirement to provide a written statement of particulars for those employed for one month or less, or for employees in particular categories such as crown servants, fishermen, where national security is involved, or where they work overseas. However, it may still be advisable and good practice to provide such employees with a written statement in order to avoid dispute between the parties.

Varying the contract

Some matters can be changed without the agreement of the employee: examples include non-contractual policies where these have been carefully drafted and where they clearly state that there is no intention for them to be incorporated into the contract.

However, organisations should treat other variations of the contract cautiously as some changes may be considered to be a fundamental breach of contract that would permit an employee to resign and claim constructive unfair dismissal. Varying terms and conditions can unsettle employees and employers may wish to consider if it would be better to allow current employees to continue on existing contracts while taking on new employees on the preferred terms.

The employer can make it easier to vary certain factors by putting an express term into the contract to allow flexibility to enable them to make changes at any time, or a clause to allow reasonable changes from time to time. Any changes made this way should not breach the duty of trust and confidence that employees can expect from employers, so reasonable notice should be given of the changes. Employers should be careful to draft flexibility clauses in line with discrimination legislation to ensure that any clause does not directly or indirectly discriminate against a particular group of employees.

The most common clauses would reflect potential business requirement changes around duties, the hours of work, the title of the job and the place the employee is required to work.

Where changes to terms and conditions are normally negotiated through a trade union, there is usually an express or implied term in the employee’s contract to allow them to do this on behalf of all employees, with the understanding that any agreed changes are automatically incorporated into the individual contract.

Where there is no express term allowing the employer to vary terms and conditions, then there are three options available:

Agree the changes with the employee after consultation. A small incentive may be offered to encourage acceptance, and changes should then be implemented within reasonable timescales.
Make any changes unilaterally. However, even where there is a pressing business need to impose the changes, this may be risky. The employee’s silence cannot be taken as acceptance if the term does not affect the employee at the time the contract was varied; otherwise, the employer may assume acceptance if the employee continues to work without objection. The employee may choose instead to continue to work, but do so under protest and bring an action for breach of contract in the High or County Court, which could then determine damages, declare the variation to be unlawful or issue an injunction to prevent the breach. Where the employee believes the breach of contract is a fundamental breach, he or she may resign and bring a claim for constructive unfair dismissal and wrongful dismissal.
Terminate the employee’s contract by notice and offer them re-engagement on new terms and conditions. An employer may consider this option where changes cannot be agreed and where it appears too risky to impose the changes unilaterally. The employer must then offer re-engagement on the new terms immediately. Employers should be aware that this may be considered in law to be a redundancy dismissal, therefore any rules around collective redundancy and consultation time limits should be observed. Although the employee may not claim breach of contract by doing this, they might still be able to claim unfair dismissal, although any compensation will be limited as the employer is offering re-engagement. See our Redundancy factsheet for more information on this topic; CIPD members can see more detail in our Redudancy FAQ.

All 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 a economic, technical or organisational reason if connected to the transfer, not merely because of the transfer or 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 subsequent clause if they have done so. In the absence of this, it is helpful to be able to rely on evidence that you as an employer brought them to the employee’s attention, and invited them to discuss any concerns with you.
Employers using agency workers on a long term basis should be cautious as case law has found that such workers might be considered to be employees.
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.
For the first five years of employment, employers may have different provisions for employees depending on their length of service. After that, under the Employment Equality (Age) Regulations 2006, the employer will need to prove that such provisions fulfil a business need, such as encouraging loyalty or motivation, or rewarding the experience of some or all of the workers.

Useful links

Business Link: interactive tool to create a written
statement

Contracts of employment