When Do You Need An Employment Contract?

Monday March 27, 2023

For any business where people are hired to do work for payment, employment contracts are essential.

An employment contract is a legally binding agreement between an employer and an employee. It establishes what the employment conditions are between the two parties. The contract sets out what the job is, the employee’s remuneration, and the rights and responsibilities of both parties.

Employees have statutory rights, which are rights that they automatically have even if they are not explicitly stated in the contract.

Why do we need an employment contract?

While providing an employment contract is technically not a legal requirement, it is still important for all businesses to have one for all their employees because it makes it clear for both the employer and employee what is expected from each.

Employees can go into a job with confidence knowing that they have specific tasks to accomplish and that they will be compensated fairly for accomplishing such tasks. Their contract also reassures them that they can expect safe and secure working conditions.

Employers benefit from avoiding or resolving disputes, as a well-written employment contract lays out in no uncertain terms what they require from employees. Through the inclusion of certain provisions, employment contracts can protect the business interests of employers such as preventing employees disclosing sensitive information or working for a competitor immediately after ending their current employment.

Ultimately, employees and employers both stand to gain from having employment contracts, as these documents provide legal protection and reduce risk and uncertainty for employment relationships.

When is it required to have an employment contract?

Although there is no legal requirement for an employment contract to be in writing, employees are legally entitled to a written statement of employment particulars on their first day of work, as per the Employment Rights Act 1996, but it is a legally distinct document separate from an actual employment contract.

Employers and employees can verbally agree to an employment contract for the contract to be recognised by the law.

A written statement is much like an employment contract in that it also explains the main conditions of employment, such as remuneration details and working hours. However, an employment contract goes beyond those key terms, as it also covers other important terms such as confidentiality clauses, non-compete agreements, organisational code of conduct, etc.

An employee contract begins when a new employee accepts a job offer. It can start even before that new employee starts working so as long as the following conditions are met:

  • The employer sets the terms clearly verbally or in writing.
  • The job offer is unconditional, or the employee has met all the conditions set out by the employer (e.g., references, physical examination).
  • The employee accepted the job offer verbally or in writing.

An employee contract still begins on the day the employee starts working even if there is no written statement provided by the employer or even if the employment contract is not in writing.

Can you change an employment contract?

An employment contract can be changed, but with certain caveats. Employers can decide on their own to change minor terms so long as they have been carefully written that there is no binding contractual effect. However, most terms in an employment contract require securing an agreement from the employee before they can be changed.

The safest course of action to change an employment contract would be to conduct a thorough consultation with the employee. Incentives can be discussed to encourage agreement.

There could be a collective agreement with a trade union recognised by your organisation. The trade union represents your employees, and they will negotiate and agree to changes to the employment contract on behalf of your employees.

If you have included a term in the contract that allows you to make changes under specific circumstances (i.e., a flexibility or variation cause), you can do so as long as the employee originally agreed to that term in the contract.

An an employer, you may also choose to push through with an employment contract change by making unilateral changes, or by terminating the current contract by notice then offer re-engagement with new terms and conditions. Both avenues are inadvisable, as they run the risk of facing employee disputes, legal action, and damaged work relations.

What happens if you breach an employment contract?

The terms in an employment contract are legally binding. If you break any one of these terms, you will be in breach of contract, and the affected employee can pursue legal action. Employees are required to resolve employment contract disputes through other means before taking the issue to court, such as through mediation, conciliation, or abitration. Mediation and conciliation have an impartial expert encourage the two parties to reach a settlement, while arbitration has the impartial expert decide on the dispute.

If the issue cannot be resolved, then it can be taken to either an Industrial Tribunal or civil court.

A breach of contract claim can only be done through an Employment Tribunal if employment has already ended and only within a three-month time limit. Personal injury claims cannot also be done through a tribunal. An employee that is still currently employed can make a breach of contract claim through the small claims track of a civil court.

Draft ironclad employment contracts with The HR Dept

It may not be required by law, but it’s crucial that you get all your employment contracts in writing. Leaving terms uncertain through mere verbal agreements is a recipe for legal disaster. Set everything straight with written employment contracts to inspire trust in your employees and protect your business.

Remember that employment contracts are legally binding, so make sure that every single term is crystal clear and compliant. Don’t take chances with templates to cover the dynamic conditions of the modern workplace. Partner with the employment law experts at The HR Dept, and we can draft all your employment contracts for you.

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