Contracts of employment – a waste of paper?

 
Employers often see preparing, issuing and updating contracts of employment as an unwanted administrative burden. The end result is that some employers have no written contract at all whilst others have contracts that have been cobbled together from numerous sources and / or have not been updated for years.
 
What many employers don’t realise is that failing to provide a statement of terms and conditions that sets out certain information can cost them financially (to the tune of 2 – 4 weeks’ pay) if the employee brings a claim at employment tribunal. In addition, the tribunal may see fit to imply terms into the employment relationship even where no express terms have been agreed.
 
On those grounds alone, having some form of written contract is a sound business choice. But how comprehensive does the document need to be?
 
Contracts needn’t be particularly long but they do need to contain certain information if they are to comply with s1 of the Employment Rights Act 1996.
 
Every employee is entitled to have a written document that sets out their basic terms of employment, including their name, the name of their employer, the date employment began and the employee’s commencement of continuous employment (most likely to be an issue when you have inherited an employee following a business transfer under TUPE).
 
The document must also state the following information:
 
  • applicable rate of pay (or method of calculating remuneration);
  • intervals at which remuneration is paid (weekly, monthly etc);
  • hours of work;
  • holiday entitlement and holiday pay arrangement;
  • terms relating to sickness absence (including sick pay);
  • applicable pension arrangements (including whether or not a contracting out certificate is in place);
  • length of notice of termination to be served by employee and employer;
  • job title or a brief description of the role;
  • in the case of a non-permanent contract, how long it will continue;
  • the place or places of work;
  • whether any collective agreements affect the employment;
  • whether the employee may be required to work outside the UK for more than a month, terms relating to that; and
  • applicable disciplinary and grievance procedures.
That said, a simple statement containing the above information is unlikely to be sufficient for more senior staff and a comprehensive, well-drafted contract (for any level of employee) can be an effective tool to protect an employer’s business.
 
Other clauses we would typically recommend an employer to consider include:
 
  • a “flexible duties” clause;
  • a “whole time and attention” obligation;
  • a “lawful deductions” clause;
  • clauses governing ownership of intellectual property;
  • data protection provisions;
  • confidentiality obligations both during and after employment;
  • the right to place your employee on “garden leave”;
  • provisions dealing with the calculation of holiday entitlement on termination of employment;
  • post-termination restrictive covenants.
 
 
In addition if you offer commission and / or bonuses as part of a benefits package to motivate staff, these should be documented and carefully drafted to stipulate what happens in the event of ill health, maternity leave and termination of employment.
 
To conclude, a good contract of employment provides clarity and can help avoid costly and time-consuming wrangles with staff. When coupled with an accurate job description and an up-to-date staff handbook, it is a valuable tool to facilitate performance management.
 
 
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