Contracts of Employment

A contract of employment is a legally binding agreement between an employer and an employee that outlines the terms and conditions of the employment relationship. Employment contracts can vary in complexity.

An employment contract is governed by the law of contract which means there needs to be 4 things:

1. An offer of employment
2. Acceptance of that offer
3. Consideration for the work done – i.e. payment
4. An intention for the contract to be legally binding

What is necessary?

There is no legal requirement to provide a written employment contract however, employers do have a legal duty to provide their employees with a written statement of the specified terms of the employment under Section 1 of the Employment Rights Act 1996. This is called a Section 1 Statement. This should be done before the employees first day of work.

As an employer, if your employment contract contains all the particulars that need to be referred to under Section 1, a separate written statement of terms does not need to be given to the employee (Section 7A Employment Rights Act 1996).

Section 1 of the Employment Rights Act 1996 states that a written statement of employment must include:

• The names of the parties
• Job title and description
• The start date of employment
• The date in which the employees’ period of continuous employment began
• Whether the contract is subject to a probationary period
• Your salary, payment dates and the method of pay
• Normal working hours
• The days of the week the employee is required to work and whether these days are variable
• Holiday entitlement
• Provisions for sick pay
• Pension schemes
• Other benefits
• Length of notice the employee is required to give and which the employer is obliged to give
• Whether the contract is permanent of for a specific period
• The location of the employment or whether the employee is required to work at various locations
• Any training entitlement
• Details of disciplinary or grievance procedures
• Any collective agreements

The employer must notify in writing, any changes to the terms of employment within 1 month of the change under Section 4 Employment Rights Act 1996.

When must it be signed?

Whilst there is no legal requirement for an employment contract to be signed it is advisable that an employer holds a fully signed contract to avoid any ambiguity about the agreed terms and to avoid disagreements in the future.

Employers should avoid relying upon an inference that an employee has accepted the terms offered by their conduct (in effect by turning up for work), even if the contract has not been signed and returned by the employee.

Failure to provide a Section 1 statement

If an employer fails to provide a section 1 statement, the employee can make a complaint to the Employment Tribunal for a declaration confirming the particulars of their employment. Where the employee successfully brings another claim in the Employment Tribunal, such as unfair dismissal, they can also claim for a failure to provide the section 1 statement. If the employer is in breach of their obligation to issue the section 1 statement, the Tribunal must make an award of between two and four weeks’ pay. A week’s pay is capped at the statutory rate, currently £643.00.

Our advice

Employers should first check that their existing Section 1 Statement / Contracts of employment covers those areas which are mandatory. If the section 1 statement or Contracts of employment fall short, steps should be taken to address those shortcomings.  For those employers who do not have either a Section 1 Statement / Contract of employment steps should be taken to rectify the same.

Whilst not legally required, there are a number of additional clauses that should be included within a contract of employment. Employers should consider amongst other things the following:

Confidentiality

A confidentiality clause in an employment contract can relate to the employee time during employment and after termination. Employers can take steps to protect company information by adding a confidentiality clause into the employment contract. This will prevent employees from discussing company information with third parties such as competitors.

Return of property

It is common for employees to have company property during their employment. This can include work laptops, phone and physical files, but also security passes, keys and online information including access passwords.

By having a return of property clause in an employment contract, this ensures the employee returns all property on termination of their employment upon request of the employer.

Restrictive covenants

Employers may want to consider restrictive covenants in their employee’s contracts which can apply after termination of employment. These restrictive clauses can be used to prevent employees from working with competitors after leaving the business. Departing employees may leave the company knowing confidential information, strategic plans, customer and client details or other information about their employer’s business which could seriously damage business.

Employees must observe the implied term of fidelity and good faith, meaning they must not disclose confidential information or compete with their employer, however these are of limited nature and do not generally extend to post termination of employment.

Express restrictions on the other hand, provided they are reasonable, can help protect the business interests.

Garden leave

A garden leave clause requires an employee to stay at home rather than attend work. The employee will still be paid for this period of time. The purpose of this clause is to keep the employee away from the company to protect its confidential information. This clause allows the employer to build a relationship with clients who worked with that employee.

This clause is more likely to be enforceable than a non-competition clause because it ensures that the employee does not suffer financially.

Payment In Lieu Of Notice (PILON)

An employer may want to include a PILON clause into their employees’ contract to give the employer the discretion to make this payment in lieu of notice and which may be limited to basic salary only. A PILON clause will allow the employer to terminate the contract with immediate effect and without  breaching the terms of the contract.

How Pinney Talfourd can help

Please do not hesitate to contact us by telephone to speak with a solicitor from our Employment team, without obligation, or simply fill out our enquiry form and one of our specialist employment lawyers will contact you.