August 1, 2018
Whether you’re a first-time employer or you’ve been managing a team of workers for years, you may ask: is a contract of employment a legal requirement? It’s a valid question.
Depending on the size and complexity of the role in question, a written contract of employment can take a long time to draft and make watertight. It can also sometimes feel, frustratingly, as though a lot of the required information is self-explanatory. So, are employment contracts actually mandatory, and can you be prosecuted for failing to provide one?
Here at Prosperity Law, our team of highly experienced commercial solicitors – based in the north of England – are well-versed in navigating the rocky terrain of manager-worker relationships, contract law and employment tribunals. We have excellent knowledge of employment contract law and how it could be of benefit to you and your company – and, in the following blog, we strive to answer your question about whether it’s an essential document.
Employment contracts – the basics
Did you know, from the moment you verbally agree to take someone on as a paid employee, an ‘implied employment contract’ exists? This renders the question of an official document somewhat obsolete. For most business managers, it’s in their best interests to set out the parameters of the new employee’s duties and the rules to which they need to adhere. This helps to avoid any confusion or lack of clarity, which could potentially leave you exposed.
It’s also a good idea to record the moment at which you officially agreed to take on a new employee. The exact time and date can sometimes be forgotten. But, regardless of whether you intend to provide an employment contract or not, this forgotten date could lead to future disputes regarding their start-date – and the date from which they should be paid.
Employee contract rights
Even before an official written contract of employment comes into play, if a position has been agreed, an employee has basic legal rights. This is due to the ‘implied contract’.
For example, employees have the right to be paid the national minimum wage for any and all work they undertake. These rights are enforceable by law, and any employers that fail to adhere to these regulations are liable to be prosecuted. In the worst-case scenario, companies failing to uphold and support these rights may be forced to cease trading.
A detailed written employment contract can be extremely useful as a means to legally prove that you are following the rules and taking your employees requirements seriously.
Is a contract of employment a legal requirement?
No, not necessarily. But whilst you do not have to issue a formal, legally binding employment contract, you are required by law to provide all workers with a statement – in writing – delineating particular terms and conditions regarding their employment. This is known as a ‘statement of employment particulars’, and the information this contains is known as the ‘principal statement’.
Enclosed within this document, readily available for any team member to view, employees should be able to find the names of both their employers and themselves, the title and description of their job, the date of the official start of their employment, and information about:
- payment – i.e. how much and how often the employee will be paid
- the hours they will be expected to work
- the amount of holiday they will be entitled to (and if that includes public holidays)
- the location of their work and whether they might have to relocate
- how long the position is expected to last (and the end-date if applicable)
- notice periods
- who to go to with a grievance or complaint
The written statement does not need to cover sick pay and procedures, disciplinary and dismissal procedures or grievance procedures – but it must say where this information can be found.
Why not just stick to an implied contract?
A full official employment contract is not technically required by law, as long as you have provided a statement of employment particulars, covering all of the details listed above. However, you may be harming yourself and your business if you decide against issuing a contract.
Within any unwritten employment agreement, there are implied contractual terms, as opposed to the express terms that can be found within a complete written contract of employment. If you decide to rely on the basic parameters of employment law, you won’t have the right to control the specifics within the job. The employee will not have been notified of your intention to do so and so will not be legally obliged to adhere to your instructions or decisions in these cases.
Implied contractual terms include the understanding that the employee will exercise an element of loyalty to their current company and will not sell on any trade secrets or unique methods of practice to competitors. They also include the demand for employers to ensure that all of their workers undertake their duties within a safe working environment and receive comprehensive relevant training if they are required to operate any advanced equipment or machinery.
Within an implied contract, it is also expected that you, as the employer, should give clear and reasonable instruction to your employees. This means you should not expect them to undertake any work they are not trained for, or that may be illegal. As the employer, any type of agreement will include the clause that your employees must be paid for their work, and must always be given the amount of work that you have agreed upon.
All of these matters are fair, of course, and cannot be negotiated or overruled by other documentation you may later decide to produce. However, relying entirely on an implied contract can be problematic and lead to a variety of grey areas.
For example, if a specific problem was to arise – whilst bound only by an implied contract – you may try to resolve the situation by researching how other similar situations were resolved in the past – such as those experienced by employees and managers of another company. But this approach can have a detrimental effect on the management of your company. Even if the result dramatically favoured the employee and disadvantaged the employer, you may be left with no choice but to do the same – since there has been no written specification otherwise on your part.
Another problematic issue inherent in working without a firm written contract is that of the ‘Chinese whispers’ effect. If factors affecting your employees’ work (or the level of workplace benefits they can receive) is not written down in one clear and universally accessible document, it’s always possible for rumours to begin to circulate – perhaps surrounding what team members can or can’t do and what they are or are not entitled to. The easiest way to avoid confusion and conflicting information between different groups of employees, is simply to record all the hard facts and figures surrounding their work. Write them down in a legally binding document, which has been agreed by you and the employees, which can be accessed by all affected individuals.
What are the benefits of a written contract of employment?
If you draft a full written employment contract, you will be able to control many more factors of your employee’s work. You can specify notice periods, for example – something that does not come under the terms of an implied agreement. The minimum notice required by law is just one week, so if you haven’t specified a greater amount of time within a written statement, problems could arise if an employee without a full official contract decides to resign from their position.
When working under an implied contract, you are bound to pay at least the national minimum wage. But with a written contract of employment, you’re able to specify exact wages and salaries – including overtime rates, bonuses and other benefits.
You can tie down the number of hours your employees will be expected to work. This removes any potential for them to exceed their allotted time – and incur additional (unwanted!) costs for you, in terms of the wages you are legally obliged to pay for extra hours. Employers are also usually required to adhere to a legal limit in terms of working hours. However, in a written agreement, an employee can sign a waiver that allows them to work beyond this limit.
You can also firm up rules surrounding holiday entitlement and holiday pay, sick leave, maternity leave, garden leave, redundancy pay and notice for both dismissal and resignation – factors that can often prove to be a point of contention within employment if there is no clarity.
While it is particularly helpful to have all of this information to hand in an easy-to-locate document (i.e. an employment contract), the individual elements of an express contract may be discovered by an employee searching through other employment documents, such as:
- the original job advertisement
- letters or emails exchanged between yourself, the management team and the employee
- any documents the employee has been required to sign in the early stages of their work or during the phase running up to that time
- any instructions or notices you have sent to them or displayed in the workplace
- their payslips
- any manuals or handbooks referring to the role or the general rules of the workplace
- any other written statement that features information about employment terms and conditions within that particular role
For this reason, if you have not provided them with an official employment contract, you need to be careful with the wording of the communications you send to any prospective or new employees – as any number of them could be used as legally binding documentation instead.
What is best for me and my company?
In the professional opinion of our team, here at Prosperity Law, it is always better to have a carefully constructed employment contract – approved by all affected parties and both shared with employees and kept close to hand as a hard copy and in electronic form.
Failure to provide a contract is very likely to set you apart from other employers in a negative sense. Most businesses provide full and comprehensive employment documentation and, by refusing to do so, you may give the impression that your organisation has something to hide or that you are likely to try and take advantage of your employees in some way. You may find that it’s more difficult to gain the trust of more discerning employees for this reason.
Creating an employment contract also makes setting rules, regulations and parameters that much easier for you as an employer. It is a great deal more difficult for those rules to be questioned, disregarded or forgotten about if they are written down within a document to which all members of staff have access.
By providing a contract of employment, you are also covering yourself legally in case of any dispute – as you can provide evidence of your employees’ official rights and job specifications and prove that all workers within your team have had access to these facts since the beginning of their time with the company.
Overall, creating a written contract of employment seems to be the safest, most sensible and secure route to take for the benefit of yourself, your company and your employees – whether or not it is a mandatory legal requirement to do so.
What should a legally binding employment contract contain?
The exact terms and clauses of an employment contract will vary dependent on the nature of your company and the role of the employee. However, generally, it should include:
- identification of the involved parties, including their address and contact information
- the employee’s start date
- the type of employment (i.e. full- or part-time)
- the employee’s pay (salary or hourly rate)
- their job title and description
- their place of work
- the days and hours of work
- details of the probationary period and any assessments
- the benefits provided to the employee (i.e. holidays, pension, sick pay)
- information regarding the grievance and disciplinary procedure
- the required notice period
I’ve never drawn up an employment contract before – how do I get started?
If this is your first time creating an employment contract, it’s highly advisable to go through everything with a legal advisor first. You may know which elements you would like the document to cover, but an experienced solicitor will be able to detect any loopholes or problematic wording, tweaking everything to ensure it is watertight and suitable for your needs.
They will also be able to advise on factors you may not have thought of and suggest additional clauses or points – which cover you in situations you might not be able to predict on your own – and clarify points further for employees.
If you decide to work with a legal advisor to create your company’s official employment contract, you should also contact them if you wish to make any changes to the document. This is a great way to make sure you are taking the right steps and that any edits you intend to make will not compromise you or change the meaning of any other clauses within the contract.
What do I do next?
If you’d like to get started in creating a contract of employment for your company, all you need to do is get in touch with Prosperity Law. Our team of experts have lengthy and comprehensive experience in practising commercial and corporate law. We always take the time to understand our client’s needs and work hard to achieve all expectations in the most effective way possible.
We strive to achieve the highest standards of performance across all commercial legal specialities – successfully working with businesses, the public sector, and individuals, using a straightforward and friendly approach. In terms of business-based law practices, we can deal with issues such as commercial litigation, sales and acquisitions of businesses and properties, employment tribunals, dispute resolution, mediation and intellectual property.
Our charge-out rates are realistic and – with an efficient and cost-effective approach to handling cases – we can provide the expert help and advice that you need and conclude matters to your complete satisfaction. You can rest assured you’ll be in safe hands from beginning to end.
Get in touch today
To find out more about employment contract law, give our Manchester, Liverpool or Lancashire offices a call on 0161 667 3686, 0151 958 0057 or 01706 659 666, respectively.
Alternatively, you can send an email to email@example.com or fill out our simple contact form here: www.prosperitylaw.com/contact, and one of their knowledgeable specialists will be more than happy to get back to you as soon as they possibly can.
Our offices are open from 9 am to 5.30pm from Monday to Friday. Prosperity Law not only offer legal advice and assistance regarding contract law, but they also specialise in commercial property law, general corporate and commercial law, wider employment law, intellectual property law, media and entertainment law, sports law, taxation law, and transportation law.