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Employment contracts1. Do I have to give every employee a contract? 2. Surely there can't be a contract if there is nothing in writing? 3. Can I make a job offer conditional - for example, on taking up references or a medical? 4. Can I make a job offer subject to successful completion of a probationary period? 5. What does the written statement of terms and conditions cover? 6. Apart from the written statement, what else forms part of the contract? 7. How can I minimise the risk of being bound by contractual terms which I do not want? 8. Are employment contracts the same for part-time employees? 10. Can I change the terms of an employment contract? 11. What can I do if employees will not agree to a change in their employment contracts? 12. Under what circumstances might an employee claim breach of contract or constructive dismissal? 15. How are claims for breach of contract or constructive dismissal handled? 16. At what point does an employment contract become binding? 17. If employees belong to a trades union, who do I negotiate changes to employment contracts with? 18. What can I do if I discover that an employee is offering to do work for our customers independently? 20. Are there any special terms I need to consider for senior employees and directors? 1. Do I have to give every employee a contract? You do not have to 'give' an employee a contract, a contract will exist, whether you like it or not, as soon as someone accepts your job offer. You are, however (with one exception, set out in question 9) legally required to give every employee a written statement covering specified terms and conditions, within 2 months of the employment beginning. If you fail to provide such a statement, the employee may refer the matter to an Employment Tribunal to decide what terms and conditions he or she is working under. The penalty for non-compliance is either 2 or 4 weeks' pay (capped at the normal maximum, currently £290.00 per week), unless 'there are exceptional circumstances which would make an award or increase unjust or inequitable'. This is not, however, a free-standing right to compensation. It is an
increase in compensation if, and only if, an Employment Tribunal finds
in favour of the employee under another type of claim, (for example, unfair
dismissal or underpayment of wages). 2. Surely there can't be a contract if there is nothing in writing? Yes there can. A verbal contract (particularly where the employee has already done some work in return for pay) will be equally binding - though it may be more difficult to prove what the precise terms of the contract are. As well as providing the legally required written statement, make sure that you have written evidence of any other important contract terms. Do not leave things to chance, or you might regret it. 3. Can I make a job offer conditional - for example, on taking up references or a medical? Yes, this would be advisable. Otherwise you will be bound by the contract
even if the reference is unsatisfactory, and will have to give full notice
to terminate. Note, too, that from October 2006 the 'default' retirement age for all employees (both men and women) will be 65 - which means that it will be illegal to require anyone to retire earlier, unless you can show why early retirement for all employees doing this work is appropriate or necessary. Do not ask for excessive information in checking on the applicant's work
history or medical record, and ensure that you have his (or her) consent
to take up references and obtain medical data. Otherwise you could fall
foul of the Data Protection Act 1998. 4. Can I make a job offer subject to successful completion of a probationary period? Yes. Three to six months is typical, and should be long enough to allow you to judge whether the employee is willing and able to do the job. It will also give you time to take remedial action before the end of a year of continuous service, if the employee's performance declines during or after the end of the probationary period employees are eligible to claim unfair dismissal if dismissed. 5. What does the written statement of terms and conditions cover? You must include: · the employer's name and the name of the employee; If you fail to complete the statutory procedures in dismissing an employee with a year or more of service (who is therefore qualified to claim unfair dismissal), or dismiss for an inadmissible or unlawful reason (where there is no minimum service requirement - see Dismissing Employees), the dismissal will automatically be unfair and you could face an increase in any compensation awarded of between 10-50%. You must also include in the written statement, or make available in readily accessible documents: · terms and conditions relating to sickness and injury, and sick
pay (other than statutory sick pay); 6. Apart from the written statement, what else forms part of the contract? Other documents may provide evidence of the contract - for example, the job description, correspondence, collective agreements or company policies if they are in the nature of contractual terms. It is advisable to make clear what is and is not considered to be of contractual status. Custom and practice in your company can become part of the contract. For example, if employees come to have 'reasonable' expectations of receiving a benefit, an Employment Tribunal or court is likely to interpret it as a contractual entitlement. All contracts also include implied terms, whether written or not. Examples are: · your obligation to provide a secure, safe and healthy working
environment; Commitments in respect of disciplinary, dismissal and grievance procedures will also be implied into contracts as a result of new legislation, planned for sometime in 2004. Employees also have statutory rights, such as the right to a minimum
period of notice, protection against discrimination, the right to be (or
not to be) a member of a trades union, and rights under working time and
minimum wage legislation. The employment contract cannot usually override
these statutory rights. 7. How can I minimise the risk of being bound by contractual terms which I do not want? The key is to ensure that you retain flexibility, while establishing
certainty. For example: 8. Are employment contracts the same for part-time employees? Yes. Part-time employees have the same rights as and are entitled to be treated no less favourably than full-time employees. For example, they have rights to the same benefits and terms of employment (pro rata if necessary) as similar full-time employees, unless the failure to provide this benefit can be objectively justified. 9. How do I handle short-term or contract employees - people I'm taking on for a couple of months or less? Make it clear in your job offer, and in any written statement, how long the employment is intended to last. Employees who are taken on for less than one month are not entitled to a written statement of terms. However, if you take someone on for more than one month they are entitled to a written statement. The Fixed Term (Prevention of Less Favourable Treatment) Regulations 2001 are, as the name suggests, aimed at preventing less favourable treatment of fixed term employees. No minimum limit as to what constitutes a fixed term employee has been set, so it could include employees on very short-term contracts. These regulations came into force in October 2002. Be aware that if a temporary worker is employed for long enough (even if the employment is through an agency), he (or she) may be able to claim permanent status, and if so will be entitled to compensation when the employment comes to an end. In addition, if a fixed term worker has his contract renewed, or is re-engaged on a new fixed term contract when he already has a period of four or more years of continued service, the contract takes effect as a permanent contract unless employment on a fixed term contract is objectively justified, or the period of four years has been lengthened under a collective or workplace agreement. Service prior to 10 July 2002 does not contribute towards this period of four years. 10. Can I change the terms of an employment contract? If you have reserved the right to amend the term within the contract, the answer is yes, provided you are not acting in an arbitrary or unreasonable manner. If you have not reserved the right to amend the term, the answer strictly speaking is no, unless it is with the employee's agreement or consent. The outcome, however, will depend partly on how serious the change is. For example, a cut in pay rates would normally justify an employee resigning and claiming constructive dismissal - and although it would now be necessary for him (or her) to raise a grievance, in a case like this it might well be done after resignation, by the 'modified' procedure (see Discipline and grievance). On the other hand, requiring an employee to work at a new location half a mile away, when there is no more than minimal disruption to travel arrangements, would probably not justify an employee resigning and claiming constructive dismissal. If a change is introduced and the employees do not object, even if there is no formal agreement to the change, they may be taken to have agreed to it by carrying on working, particularly where the change has an immediate impact. Whatever the circumstances, the best approach is to discuss. Explain
why you want to make the change, and offer incentives if necessary. 11. What can I do if employees will not agree to a change in their employment contracts? It is possible to terminate the contract on full notice and offer to re-engage the employee on new terms of employment, taking effect on expiry of their notice. There would be no breach of contract in this situation but there is a risk of employees claiming unfair dismissal, so take legal advice before commencing this course of action. Dismissals can be fair if you can justify changes by reference to your
business needs. You must be able to show that the needs of the business
outweigh any disadvantages to the employees, explain the business reasons
fully and warn and consult employees over the required changes. 12. Under what circumstances might an employee claim
breach of contract or constructive dismissal? For constructive dismissal: · there must be a breach of contract by the employer; Following the introduction of minimum statutory disciplinary and grievance procedures in October 2004 (see Discipline and grievance), an employee who believes that his (or her) contract has been fundamentally breached by the employer must nevertheless raise a grievance before taking the matter to an Employment Tribunal. Failure to raise a grievance, at least 28 days before submitting a complaint, will result in the complaint being thrown out without a hearing. It is for an Employment Tribunal to decide what amounts to a fundamental or serious breach of contract. Breach of a written term - such as a unilateral decision to reduce an employee's pay, without his consent - will almost certainly be held to be fundamental. So will a breach of the implied term of mutual trust and confidence (see question 6). This includes such things as singling the employee out for unfair treatment, failure to investigate grievances or harassment allegations, failure to prevent bullying, undermining the employee, 13. What would my potential liability be if an employee claims breach of contract or constructive dismissal? Damages for breach of contract are normally the value of the employee's net salary and benefits (for example, loss of any commission, company car or pension rights) for the length of the employee's notice period. An Employment Tribunal may only award breach of contract damages up to £25,000.00 but they can be unlimited in the County Court or High Court. If a constructive dismissal is also found to be unfair by an Employment
Tribunal, then the damages comprise the basic and compensatory award.
The basic award is calculated in the same way as a statutory redundancy
payment, currently by reference to age, length of service and weekly wages
(capped at £290.00 at the moment and subject to a maximum of £8,700.00).
The compensatory award is calculated to compensate for loss of earnings
and benefits between the date of resignation and the date of any tribunal
hearing. An Employment Tribunal can also make an award for future loss
of earnings. A former employee has a duty to minimise the loss by taking
reasonable steps to obtain alternative employment and there can be reductions,
for example for contributory conduct. The maximum compensatory award is
currently capped at £58,400.00. 14. If a change to employment contracts is essential for the survival of the business, would it reduce any compensation for constructive dismissal? The overriding obligation in respect of claims for unfair (constructive) dismissal is to award such compensation as is 'just and equitable'. Generally the tribunal would not reduce compensation in this situation. If the employer can argue that the contracts would have been terminated shortly in any event, then the period of loss may be reduced. It is however very difficult to justify any failure to warn or consult in such situations, with a view to getting agreement to the change, so the employer must follow the correct procedure. 15. How are claims for breach of contract or constructive dismissal handled? A Judge deals with claims for breach of contract in the County Court. If the claim is for less than £5,000, the matter will be dealt with in the Small Claims Court. If the claim is particularly complex, or of a high value, the matter may be dealt with in the High Court. Claims have to be brought within six years of the breach of contract complained of. Breach of contract claims arising or outstanding on termination may also
be brought in an Employment Tribunal for damages of up to £25,000.
Claims for unfair constructive dismissal must be brought in an Employment
Tribunal. In both cases, it will now be necessary to raise the matter
as a grievance first (see question 12), and the Employment
Tribunal limitation of three months from the date of dismissal will apply
unless that time limit is extended to six months under the statutory minimum
procedures. 16. At what point does an employment contract become binding? Once an unconditional offer of employment has been accepted by a potential employee, a contract exists. This may occur before the employment commences. 17. If employees belong to a trades union, who do I negotiate changes to employment contracts with? The primary question is whether the employees belong to a trades union which is recognised in the workplace by you (as the employer), as representing the majority of the workforce for collective negotiation purposes. If so, negotiations would be carried out with the trades union. If agreements are reached with the union this will be incorporated into the contracts of employment of its members and bind individuals even though they themselves do not individually agree to the changes. If employees who are not covered by the recognition agreement are affected,
then consultation and negotiation should also be carried out with those
individuals. 18. What can I do if I discover that an employee is offering to do work for our customers independently? An employee has an implied duty of good faith toward his employer. This duty relates principally to a number of aspects of confidentiality and non-competition. During employment, the employee must not allow his personal interest to conflict with his duty of good faith to his employer. It is a breach of this duty to agree to work personally for customers of the employer, if this places him in competition with the employer and undermines the interests of the business. Technically, such a breach of contract entitles the employer to claim
damages for any loss suffered. 19. How can I use the employment contract to protect the company against an ex-employee who has resigned or been dismissed? The inclusion of a restrictive covenant and a clause protecting confidential information in the employee's contract allows you to prevent competition from, or the exploitation of commercially sensitive information by, an ex-employee after employment ends. In the absence of such provisions an ex-employee may enter into competition with you, solicit your customers, use confidential information and poach your staff. For a restrictive covenant to be enforceable the following conditions apply: · the employer must have a legitimate business interest to protect;
and Once again, legal advice should be obtained because covenants need careful
drafting to ensure their validity and enforceability. 20. Are there any special terms I need to consider for senior employees and directors? It would be advisable to put a longer notice period in their contracts of employment in order adequately to prepare for their departure, and the handover required to a replacement. You may also want to reserve the right to place the employee on 'garden leave' during the notice period. Given their seniority, and access to commercially sensitive confidential information and customer contracts, it would also be sensible to consider whether restraint of trade clauses such as non-solicitation of clients and/or staff and detailed confidentiality clauses should be included within the contract. There may also be agreements on commission or bonus payments which need careful drafting. For directors, you also need to think about provisions relating to their position as directors, and how you would handle the termination of the office if their employment were to be terminated. Although these FAQs highlight some key issues relating to employment law, it should not be considered comprehensive and is not a substitute for seeking professional advice on a specific issue. Disclaimer Although we have made every effort to ensure that the information contained in these FAQs is accurate, Business Hotline Publications and the named experts disclaim any liability for any errors or omissions. © Business Hotline Publications Ltd |
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