CONTRACTS OF EMPLOYMENT
Employment contracts not only provide important protection
for employer’s in defining the working relationship and obligations between
employer and employee, but a minimum written statement of terms and conditions
of employment is a legal requirement on employers. The following examines those
terms which must be included in a written contract and goes on to look at some
additional terms which employers may chose to incorporate. As such it is written
from the perspective of the employer and the ways in which employers can enhance
their protection through the employment contract are examined throughout.
The Essentials (as required by law under
section 1 Employment Rights Act 1996)
Commencement and Continuity
Details of the employee’s date of commencement of employment need to
be given and are relevant for calculation of an employee’s statutory
Job Title and Duties
The employee’s job title and duties should be stated. However, it is
advisable to ensure that the flexibility to vary those duties is retained.
Place of Employment
The employee’s usual place or places of work should be stated. It is
usual for to include a provision permitting employers to move or transfer employees
(“the mobility clause”) to other locations.
Hours of Work
Normal working hours, break times and where relevant, overtime rates should
be stated but again, an element of flexibility should be incorporated.
The holiday year (which is not always the same as the calendar year), the amount
of holiday entitlement (which may increase with length of service) and the
rate at which holiday accrues need to be stated. Consideration should also
be given to establishing the way in which untaken holiday or excess holiday
is dealt with on termination. Also, can holidays be carried forward to the
following year? Will holiday entitlement still accrue during prolonged periods
of sickness absence?
The amount of the employee’s wages/salary and how when it is to be paid
should be stated and often a provision is made for an annual review.
Nature of Employment
Employment can be temporary, permanent or for a fixed term. If the employment
is for a fixed term, it may be possible to exclude statutory rights in relation
to redundancy payments and/or the ability to claim unfair dismissal, depending
upon the length of the fixed term.
As a minimum an employer must indicate whether a contracting out certificate
is in force. If it is details of the alternative pension scheme should be
The employer’s rules relating to the reporting of sickness absence should
be made clear together with the amount of sick pay an employee will be entitled
to receive. Employers may also wish to include a contractual requirement that
employees agree to submit to an independent medical examination in certain
circumstances, e.g. prolonged or excessive sickness absence.
Grievance and Disciplinary Procedure
Disciplinary procedures should be non-contractual and are often incorporated
into a separate schedule or policy document. ACAS guidelines should be followed
in all cases. However, the right to dismiss an employee instantly in circumstances
amounting to “gross misconduct” needs to be included in the contract
itself as a contractual right. Employers should also provide a non exhaustive
list of examples of those offences deemed to constitute “gross misconduct” offences.
Details of all collective agreements which directly affect the terms and conditions
of employment should be given. If there are no collective agreements in force
this fact still needs to be stated.
Notice of Termination
If express notice periods are not provided for in the contract of employment
the Employment Rights Act sets out minimum statutory notice periods. In the
case of employees giving notice the statutory minimum notice is only one
week. This may be too short for many employers and may cause hand-over problems
depending on the seniority and responsibilities of the employee concerned.
The statutory minimum notice period which employers are required to give
increases according to the employee’s length of service. In addition,
employers need to give consideration as to whether they need to reserve a
contractual right to make a payment in lieu of notice of termination.
Work outside the United Kingdom
If an employee is required to work outside the UK for more than one month at
a time details of the specific terms and conditions of employment whist working
abroad need to be given.
Acceptance and Acknowledgement
Employers should ensure that the contract is signed by the employee to indicate
acceptance of the terms contained in it.
The Optional Extras
Employers may wish to put new employees (or those recently promoted) on a probationary
period with a provision permitting the employer to increase or extend that
period in certain circumstances.
A garden leave clause is highly desirable where an employee has access to sensitive
information. It permits the employer to require an employee who is leaving
employment to serve out his or her period of notice away from the employer’s
premises thereby keeping sensitive and valuable information (such as client
lists) out of reach.
Short Time Working/Temporary Lay-Off
There are statutory rules which govern short time working and temporary lay-off.
However, these cannot be automatically invoked unless the contract permits
the employer to do so.
Bonus Schemes/Commission Arrangements
If an employer operates a bonus or commission scheme it is advisable for the
details of the scheme to be clearly stated. Employers may wish to consider
reserving the right to unilaterally vary or withdraw such schemes at any
Retirement age is usually 65 for both men and women. A lower retirement age
may be expressly given provided it is the same for both sexes.
An employer does not have the right to deduct monies from an employees wages/salary
unless an express term is included in the employee’s contract of employment.
It is advisable to reserve the right to make deductions in certain cases
such as overpayments (e.g. normal pay, holiday pay or sick pay), loans made
to employees, or losses incurred due to an employee’s negligence or
breach of duty.
If employees are likely to incur expenses in the performance of their duties,
the manner in which such expenses may be recovered (and any proof required)
should be provided for.
Employers should require employees to return records and other property belonging
to the employer at any time during their employment and especially upon termination
Recovery of Training Fees
Employer’s who incur training costs may wish to consider retain the right
to recover those costs from the employee. This provision is made for instances
where an employee fails to attend the a training course or leaves employment
within a certain period of having attended such a course. However, the ability
to recover training costs should be embodied into a separate document to ensure
the right to recover remains independently enforceable from the contract of
Employers need protection if employees have access to intimate trade secrets
and other confidential information that could be extremely damaging in the
wrong hands, such as those of a competitor. The protection of such information
and a prohibition on it ever being revealed is essential in such circumstances.
However, employers must be specific when detailing the nature and identity
of the information this obligation will extend to.
Restrictive covenants are used to prevent employees from competing or from
going to a competitor for a certain period following the termination of their
employment. The restrictions may also extend to an employee soliciting or
dealing with other employees, clients and/or suppliers for a specific period
after his or her employment has ended. However, to be capable of being enforced
these clauses must not be unreasonable or unduly restrictive. Factors such
as the length and geographical extent of the restriction are relevant to
the issue of enforceability. The use of these clauses are particularly pertinent
to sales staff and other key employees.
If employees are involved in the design, invention or creation of new ideas
or products, it is advisable to ensure that the copyright, design right or
trademark in such ideas or creations are expressly transferred/reserved for
the benefit of the employer.
Employees who have the benefit of a company car should be provided with details
of how the benefit operates. Consideration should be given to whether private
petrol is to be paid, whether private journeys are allowed, and whether family
members are allowed to drive the car.
Generally employers only discover the importance of not only
the existence of a contract, but also one which is well drafted, when it is
simply too late. Firstly, imagine the uphill struggle an employer will have
in attempting to convince an Employment Tribunal that they are a reasonable
and fair employer if their contracts of employment do not comply with even
the minimum requirements laid down by section 1 of the Employment Rights Act
1996, or they are out of date with current legislation. Worse still, the position
where the employer does not have any contracts of employment in place at all.
Secondly, imagine the financial loss occasioned, for example,
by a failure to ensure appropriate protections are in place to prevent the
use of confidential information, intellectual property, or unfair competition
by former employees. There are many other examples. Contracts of employment,
proper policies and/or Staff Handbooks are not a luxury for employers. They
should be regarded as essential and regularly updated, or a penalty will eventually
and inevitably be paid.