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:
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 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.
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.
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.
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:
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.
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.
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.
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The above is meant to be only advice and is correct as of the time of posting. This article was written by Charlotte Dawe, Trainee Solicitor in the Employment Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of September 2023