Contracts of Employment

8th July, 2010

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. Employment contracts therefore consist of a mixture of express and implied terms.

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 examples of terms 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 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
  • an intention to create a legally binding arrangement.
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?
  • 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 is important that employers make the relationship clear at the outset, not least because employees have many more rights in law than non-employees.

Section 1-7 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.

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
  • 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).
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 variations of the contractual terms 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.

An employer can try to make it easier to vary certain factors by 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.

There are three main options available to employers who do wish to alter the terms of an existing employment contract

1.Agree the changes with the employee after consultation.

2.Make any changes unilaterally. However, even where there is a pressing business need to impose the changes, this may be risky.

3.Terminate the employee’s contract by notice and offer them re-engagement on new terms and conditions.

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

 

For further information or advice please contact employment.law@ianshaw.co.uk