Contracts of employment

It’s essential that organisations follow the law, but it’s also good practice to ensure that both employers and employees understand the basis on which employment has been agreed. Having a well-drafted contract should enable this to happen. Employers should familiarise themselves on the relevant points of law, such as employee status, the rules governing written particulars, equal pay and the minimum wage, fixed-term and part-time work, flexible working, parental leave and working hours.

A contract of employment is a legally-binding agreement between an employer and employee. For the UK, the term is defined by the Employment Rights Act 1996 as a contract of service or apprenticeship. Employment contracts consist of a mixture of express and implied terms.

Express terms

Express terms are those which are actually stated in writing or given verbally. Written express terms are not restricted to written employment contracts but can include a number of other documents, such as a staff handbook.

The terms must meet any minimum legal standards such as the right to paid holidays and the right to daily and weekly rest breaks.

Any employee who has been employed for one month or more has the statutory right to a written statement of particulars of employment. This is covered in more detail below.

Implied terms

Other terms are implied into contracts. This may happen because 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 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 impliedly agreed
• 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 (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. This will help avoid uncertainty or dispute between the employer and the employee about the terms.

A contract of employment is in many respects no different from any other 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, 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.

Our Terms and conditions of employment Q&As for CIPD members have more detail on contractual matters.

A contract of employment only applies where there is an employer/employee relationship. There's an important 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. Various tests are used to decide whether a person is an employee under such a contract, including:

• 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?
• integration - how far is the employee integrated into the employer’s organisation?
• multiple - looks at a number of factors including 'substitution' (that is, can the worker send another person to do work for the employer on their behalf?)

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

There has been much public debate on zero-hours contracts. Zero-hours contract is not a legal term, but means a contract of employment in which there is no set minimum number of hours. Find out more in our zero-hours contracts facthseet.

Certain workers who are not employees may have some protection by legislation such as the Working Time Regulations 1998 and the National Minimum Wage Act 1998 which give rights to all workers who perform work personally, even though these people might not qualify for other protection given to employees. CIPD members can find out more in our Employee status law Q&As.

The essential elements of the written statement of particulars of employment are set out in the Employment Rights Act 1996, as amended by the Employment Act 2002. Some information must be included in one document while 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. There's more on employees working overseas in our factsheet on international mobility.

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, employers can refer their employees to their employee handbookor other policies for precise details of issues such as:

• documents relating to disciplinary and grievance rules and procedures
• documents relating to sickness and pensions
• documents relating to the detail of bonus or commission schemes
• collective agreements
• other terms that are not mandatory terms (for example, private health care, overtime, holiday arrangements, retirement).

The written statement may additionally contain other clauses that an employer wishes to rely on. Where an offer letter or written contract sets out the main employment terms and conditions, this can satisfy the requirements of the written statement.

The written statement of particulars must be provided within two months of the employment starting.

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. However, it may still be advisable and good practice to provide such employees with a written statement to avoid dispute.

Varying contractual terms normally requires the employee’s agreement. 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.

Organisations should therefore treat variations of the contractual terms cautiously as some changes may be considered to be a fundamental breach of contract that would allow an employee to resign and bring an employment tribunal claim.

An employer can try putting an express term into the contract which states that a particular term is variable. Whilst such clauses may encourage the employee to assume that the changes are permissible even an express clause will not guarantee that the employer can significantly vary a contractual term.

Employers who do wish to alter the terms of an existing employment contract have three main options:

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

2. Make any changes unilaterally. Even where there is a pressing business need to impose the changes, this may be risky. In some circumstances the employer may assume acceptance if the employee continues to work without objection. However, the employee may choose to continue to work, but do so under protest and bring an action for breach of contract. Alternatively, the employee may resign and bring a claim for constructive unfair dismissal and/or wrongful dismissal. See our factsheet on dismissal procedures.

3. 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 in legal terms this may be considered to be a redundancy dismissal, so they should follow any rules around collective redundancy and consultation time limits. This course of action is not without risk: the employee may claim breach of contract or unfair dismissal, although any compensation will be limited as the employer is offering re-engagement. See our factsheet on redundancy.

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 a 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.

Contacts

Acas - Contracts of employment

GOV.UK - Employment contracts

GOV.UK - Contract types and employer responsibilities

GOV.UK - Written statement of particulars

GOV.UK – Interactive template for a written statement of employment particulars

Books

ACAS. (2014) Varying a contract of employment. Advice leaflet. London: Acas.

HOWARD, G. (2010) Drafting employment contracts. 2nd ed. London: Law Society.

INCOMES DATA SERVICES. (2014) Contracts of employment. Employment law handbooks. London: IDS.

Journals

CHAMBERS, G. (2013) Get it all in writing. Employers' Law. November. pp18-19.

COOK, C. (2015) Global employers: can an employer choose which country's laws will apply to its employment contracts? Employers' Law. April. p17.

DAVIES, R. (2014) Beginning and ending a fixed-term contract. Employers' Law. July/August. pp18-19.

ROBERTSON, N. (2013) It may not be as simple as you think. Employers’ Law. February pp18-19.

WALTON, M.J. (2016) The shifting nature of work and its implications. Industrial Law Journal. Vol 45, No 2, July. pp111-130.

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.