Essentials of an Employment Contract

Jill Gracey informs us of the essential elements of a contract of employment. Under the Employment Rights Order 1996, employers are required to provide an employee with a written statement of certain terms and conditions including, for example, the employee's job title with a brief description of the role, contracted hours, remuneration, notice of termination, and pension arrangements, to name but a few. In her latest video, Jill provides a brief synopsis of what should be included in the contract of employment. She also looks at implied terms and ways in which an employment contract might protect the business interests of the employer.

Transcription

Employment contracts: Key features

Employment contracts are largely governed by the same core principles of any contract. There must be an intention between the parties to enter into legal relations. An offer must be made and must be accepted, and there must be consideration.

Under the Employment Rights Order 1996, employers are required to provide an employee with a written statement of certain terms and conditions including for example, the employee's job title with a brief description of the role, contracted hours, remuneration, notice of termination, and pension arrangements, to name but a few.

This written statement must be provided within two months of the employee commencing their employment with the employer. Terms such as these would typically be found as express terms in a contract of employment. However, contractual terms do not necessarily need to be written down in an employment contract in order to be legally binding.

Express and Implied Terms

Contractual terms may be implied or could be incorporated under other instruments or documents. For example, statutory obligations, terms set out in a collective agreement, or provisions contained within company policies and procedures.

Looking at implied terms, there are implied terms which are automatically read into an employment relationship. For example, the obligation of mutual trust and confidence, to act in good faith, to obey reasonable and lawful instructions, and to provide a safe working environment for employees.

Additionally, a court or a tribunal has the power to imply terms into an employment relationship, in the absence of an express term addressing a certain point, particularly if it is necessary to provide clarity in order to make the contract workable. If a court or tribunal is to imply a term into an employment relationship, it will look at the behaviour and practices of the parties, and the custom and practice operated in the workplace. Understandably, this can result in a degree of uncertainty for both parties. Therefore, it is always best to try and avoid any ambiguity within the written terms of the employment contract so as to reduce the likelihood that a court or tribunal would be required to imply terms into a contract, particularly when the terms were never intended by the parties in the first place.

Employers should be wary of arrangements which may be deemed to be implied contractual terms by way of custom and practice. For example, when making bonus payments or offering enhanced redundancy packages. If such payments have been made in the past, an employee may argue that the employer has an implied obligation to continue to make such payments to employees in the future. This is quite a difficult argument for an employee to successfully make, and very much depends on the particular facts and circumstances. However, clear and unambiguous written provisions within the employment contract and associated policies and procedures should reduce the risk of the term being implied by way of custom and practice.

In addition to both the express and the implied terms of a contract, certain terms are automatically enshrined by statute, and an employer cannot contract out of these terms or vary them. For example, the obligation to pay at least the national minimum wage, the right of an employee to take annual leave, and the right of an employee to take rest breaks throughout the day, and the right to take maternity, paternity, adoption, or shared parental leave.

Employers should also be mindful of any collective agreements which may place contractual obligations on them or any obligations inherited through it, through a TUPE transfer or service provision change.

Depending on the drafting and scope of company policies and procedures which may, for example, be contained within a staff handbook, those policies could have a contractual effect on the parties. Therefore, changes to a staff handbook must be very carefully considered as any change to a contractual term will require the employee's mutual consent to that change.

Restrictive Covenants

Contracts of employment can be a very useful tool to protect the business interests of the employer. You may wish to include provisions that protect the company from unnecessary disclosure of confidential or sensitive information by the employee both during their employment and after its termination. Also, employers will often include what we call ‘restrictive covenants’ in an employee's contract of employment, particularly for senior employees or executive directors in order to protect the legitimate business interests of the company for a specified period after the termination of the employment. However, particular care must be taken when drafting restrictive covenants, as they can be very difficult to enforce, and the scope of the covenants should go no further than necessary to protect the legitimate business interests of the company.

So to summarise, employment contracts should be prepared on a case by case basis depending on the employee's role and provisions which attach to that role, for example, salary. Provisions within the contract should be clear and unambiguous to reduce the risk of misinterpretation of the agreed terms.

Consideration should also be given to what will happen when the employee and the employer part ways. And how the company's business interests can be protected as best as possible following termination, through clear notice provisions, restrictive covenants if applicable, and provisions that prohibit the unnecessary disclosure of confidential information.