1. Introduction to Contracts
Getting the Foundation Right - Why Have Contracts?
The contract of employment forms the basic foundation upon which the employment relationship is built.
A contract of employment is a legally binding agreement. That means that either party can rely on it and sue the other party if there is a breach of the terms. A serious breach by an employee would allow the company to terminate the contract. A serious breach by the employer would allow the employee to make a claim against the company (e.g. to an employment tribunal).
It also means that the contract cannot be changed without the agreement of both parties (but please see changing terms). It must be brought to an end by following the terms of the contract, i.e. this would be covered under notice period in a contract. For example, if the contract states that the company will give 3 months notice of termination, the company cannot decide they only want to give one month. If they do, the employee can sue for breach of contract.
The contract of employment is formed when employment is offered and accepted. It does not have to be in writing for it to form a legally binding contract. However, where there is no written contract of employment in place, there is room for misunderstanding and disputes as it will be based on what was agreed verbally and what has actually happened (custom and practice).
There are also legal requirements (see below) to provide written terms, and so a written contract also ensures you are compliant with your legal obligations.
Good contracts of employment will provide the organisation with protection and flexibility, so they are essential for all businesses and organisations.
Contracts will set the ‘stage’ and give clear boundaries for employees. Very often, when a dispute arises, the first document that will be called for will be the contract of employment, followed by any other appropriate terms or documents (e.g. the disciplinary procedure). If there is no contract, or the terms are ambiguous or even out of date with employment legislation, disputes can quickly escalate. It can then be a matter of what both parties ‘assumed’ to be the terms, and each may have assumed something different!
Clearly drafted documentation can prevent disputes arising. If everyone is clear from the outset – about the rules, the standards and the terms - there is less chance of misunderstandings or disagreements. And if disputes do arise, they can generally be resolved more quickly, easily and amicably.
The legal requirement is to provide all employees (and workers) with their 5 core terms of employment within the first 5 days (as defined under the Employment Miscellaneous (Provisions) Act 2018). Their full contract must be provided in writing within 2 months of their start date. You can of course provide this before commencement. We would recommend including the provisions of the written statement in the full contract of employment and issuing this prior to employment (i.e. when you make the offer) or, at the very latest, on day one.
It should also be remembered that the information in the 5 core terms covers the basic requirements and does little to protect an organisation or the employer. It is therefore recommended that you go beyond the legal requirements and provide a full contract of employment no later than the date of commencement.
Offering a Contract
It is recommended a written contract of employment is offered to all employees when they are first offered (and have accepted) the job.
The employee must then accept or decline the offer on these terms, or there may be some negotiations between the company and the employee. What is important is that the terms are clear from the outset, and therefore misunderstandings and disputes will be avoided or minimised. This approach is good practice and can lead to better employee relations, as any disputes over terms, however minor, can be detrimental to the employment relationship.
It is further recommended that contracts of employment be written to protect the company. This does not mean they have to be onerous to employees, but they should be comprehensive and cover some of the ‘quirks’ of employment law that can leave an employer exposed to unnecessary costs if not covered (e.g. deductions, termination, short time working, restrictive covenants).
There may also be terms applicable to different employees in different positions/job roles within the organisation (e.g. notice period, hours of work, overtime, company cars, benefits etc).
Contracts must also be supported by a number of policy and procedural documents (as an absolute minimum). These include a disciplinary and grievance procedure (in line with the WRC Code of Practice), and an Equal Opportunities Policy. See the HR Policies section or further information and template policies.