Essential guide to employment contracts

Employer and new employee review employment contract

A contract of employment exists as soon as an applicant accepts your offer of a job.

A clear, reasonable contract helps ensure the employee understands what is expected and minimises the risk of disputes. At the same time, you need to understand what your contractual obligations are, and what terms you can (and cannot) enforce.

The basics

Written statement

Other contractual terms

Non-contractual terms

Common issues

1. The basics

A contract of employment exists as soon as an applicant accepts your job offer

This applies regardless of whether the offer is writing.
The contract can be conditional upon an employee providing you with evidence of suitability, such as adequate references.

You must provide every employee (full-time or part-time) with a written statement

You must do this on or before the first day of work.
The written statement must cover a number of specified terms and conditions.
You can provide the information in instalments as long as the majority is issued on or before the first day of work and the rest is provided within two months of starting work.
An employee may complain to an employment tribunal if you fail to issue the statement on time, or if the statement is incomplete.
There is no penalty for failing to issue a statement unless the failure is established in the course of other tribunal proceedings. A tribunal may award two or four weeks' pay.

Company custom and practice may form part of the contract, even if not written down

To protect themselves, employers should ensure everything important is in writing.
Make it clear what is not part of the contract.

There are legal constraints on the content of the contract

Some implied terms are included in every contract, even if they are not written down, and contracts cannot override certain statutory rights. See Other contractual terms.

You cannot change the employment contract unilaterally

Consult employees and get their agreement before changing their terms and conditions.
Altering terms and conditions without the employee's consent is a breach of contract. This could lead to a complaint of constructive dismissal (unless the change is clearly advantageous to the employee).
If you wish to change any of the terms and conditions, you must notify the employee in writing within a month of the change.

Sample employment contracts

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2. Written statement

You must provide a written statement

You can provide a single written statement covering all the terms. Alternatively, you can provide a principal statement, together with further instalments covering the other specified terms and conditions.
The statement must cover all the specified terms and conditions, even if they do not apply.
Download this template written statement of employment from the GOV.UK website.

The principal statement must contain specified details

The names of the employer and employee.
The date when the employment began.
The date on which the period of continuous employment began (this may include previous employment with a related employer).
The employee's scale or rate of pay (or how it is calculated) and the intervals at which wages or salary will be paid.
Information about working hours (start and finish times, shift patterns, meal breaks, rest days, overtime and overtime payments, etc).
Holiday entitlement (including bank and public holidays) and holiday pay. This must provide enough information to work out the employee's entitlement to accrued holidays and holiday pay on termination of employment.
The employee's job title (or a brief description of the work for which the person was employed).
The employee's place of work. If the employee is required or permitted to work in various places, the statement should include an indication to that effect and a note of the employer's address.

Other details are also required

The principal statement or other related documents must also include:

information on discipline and grievance procedures;
any terms and conditions relating to incapacity for work, including any provision for sick pay (other than statutory sick pay);
any terms and conditions relating to pensions and pension schemes;
the length of notice which the employee is obliged to give and entitled to receive to terminate the contract of employment;
the intended period of employment or the date when it will end (unless the post is permanent);
any collective agreements which directly affect the terms and conditions of employment.

The statement should include a note on disciplinary procedures

This should explain what the procedures are.
Procedures must be fair and reasonable. It is advisable to follow the Acas Code of Practice.

The statement should include a note on grievance procedures

This should explain what the procedures are.
Procedures must be fair and reasonable. It is advisable to follow the Acas Code of Practice.
The note should state which individual (by name or job title) the employee should contact with any employment grievance, and how to do so.

Working abroad

The written statement may require extra details for employees who work abroad

If an employee will be required to work outside the UK for more than one month, the written statement must also include:

how long the employee will be required to work outside the UK;
what currency the employee is to be paid in;
what additional remuneration or benefits (if any) will be paid or provided;
any terms and conditions relating to the employee's return to the UK.

You may need to provide the written statement before the employee leaves the UK

This applies if the employee is to work abroad for more than a month during the first two months of taking up their post.

Employees working outside the UK may have the same employment rights as UK workers

In some circumstances, employees working outside the UK have employment relationships so closely connected with the UK that they are entitled to the same rights (eg unfair dismissal) as UK-based workers.

3. Other contractual terms

Every contract includes implied terms, whether they are written down or not. In addition, no contract can override certain statutory rights. Employers have a duty to provide employees with information concerning their rights.

Requirements for employers

Employers must:

provide a secure, safe and healthy working environment which includes provision for safe working methods and appropriate health and safety training;
not take any action which may undermine the relationship of 'trust and confidence' with their employees;
ensure that an employee's grievances will be dealt with promptly and properly.

Requirements for employees

Employees must:

serve the employer honestly and faithfully;
not compete with the employer's business;
not divulge confidential information;
obey reasonable and lawful instructions;
work with due diligence and skill and take reasonable care of the employer's property.

Employees' statutory rights

Contractual terms which attempt to override statutory rights may be void and unenforceable. They include:

a minimum period of notice;
rights under anti-discrimination laws;
the right to be, or not to be, a member of any particular trade union;
rights under legislation relating to working time and pay.

Employees can adopt employee-owner or employee-shareholder status

Employees adopting employee-shareholder or employee-owner status forego some of their statutory employment rights in exchange for free shares in the company.

Various laws restrict who you can employ

For example, there are restrictions on employing non-EU workers and children. If you are in any doubt, ask your legal adviser.

Employee-shareholder contracts

Employee-shareholder or employee-owner contracts provide a different form of employee status. For contracts entered into from 1 December 2016, the tax benefits associated with the employee-shareholder scheme have been removed.

Employers give employees free shares in the business

These must be worth at least £2,000.

Employee-shareholders give up a range of employment rights in return

Unless the company opts to give employee-shareholders more generous employment conditions, employees:

are not entitled to statutory redundancy pay;
do not have the right to request flexible working (except on return from parental leave) or for time off for training;
do not have ordinary unfair dismissal protection;
must give 16 weeks' notice to return early from maternity or adoption leave (instead of the usual eight).

Employee-shareholder contracts can be used by companies of any size

They are optional for existing employees.
Companies can choose to offer only employee-shareholder contracts for new employees.

4. Non-contractual terms

Any job offer can become a contractual obligation

Make it clear at interview that you are not offering a job at this stage.
Ensure that any job offer letter states the contract will be governed by written terms and conditions.
Include the written statement of terms and conditions.

Provide job descriptions which allow you the maximum flexibility

Include a statement that you reserve the right to amend or add to job descriptions. For example, to accommodate any restructuring of the business.
Reserve the right to change the employee's place of work. If you do not, you may be in breach of contract if the business is relocated and you try to get employees to move to new premises.
Even if you do reserve the right to change it, an employee may be able to claim a 'place of work' redundancy.

Make it clear if you intend benefits to be non-contractual

Non-contractual benefits are easier to amend or withdraw. For example, discretionary bonuses.
Identify them as 'non-contractual benefits' in the written statement. Explicitly state that you reserve the right to alter or withdraw them.
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.
It is good practice to give reasonable notice of your intention to withdraw or alter any benefits, and to discuss your plans with employees.

Give yourself some flexibility on disciplinary rules and procedures

It is advisable to follow the Acas code of practice.
Make it plain you intend to be consistent in dealing with problems, but reserve the right to enter the discipline process at different stages, depending on the offence.
Give some examples of how offences might be handled, but make it plain they are only examples.

5. Common issues

Take legal advice if you have any specific concerns.

There are legal restrictions on working hours

There are detailed regulations regarding minimum daily and weekly rest periods, maximum weekly hours, paid holidays and health assessments for night workers.
The regulations are complex and you should take legal advice if you have particular concerns.

Entitlement to annual holiday must be set out in the written statement

Almost all employees are entitled to a minimum of 5.6 weeks' paid annual leave pro rata. However, employers can include bank holidays as part of statutory annual leave, A minimum of four weeks' holiday must be taken. The remainder can often be rolled over to the next year.

In general, you are not entitled to make deductions from an employee's pay

Normally, you must have a prior written arrangement, or be required to do so by law.

Dismissing an employee may give rise to a claim

The employee may claim for unfair dismissal, breach of contract, or both.
Make sure the contract clearly states the grounds on which you can terminate the employment without notice, or with a payment in lieu of notice.
Even in cases of gross misconduct, you must comply with statutory requirements and follow a fair procedure.

Benefits must be provided on a basis that does not discriminate

You must not discriminate between employees, either directly or indirectly, on a wide range of grounds including sex and age, or between part-time and full-time employees.
This applies whether benefits are contractual or non-contractual.
The terms and conditions on which benefits are provided should be spelled out clearly and unequivocally.
Even discretionary payments can lead to a claim of unlawful discrimination.

Clarify ownership of intellectual property

The employer normally owns the rights to any intellectual property created by an employee in the course of employment. This should be written into the contract.

You may want contracts to include confidentiality clauses

Confidentiality clauses should be included in the contracts of those with access to sensitive information.
Employees are under an implied duty not to divulge trade secrets, both during employment and after it has ended.
Set out clearly in the written contract what you consider to be confidential.

Preventing ex-employees from competing with you is difficult

To prevent an ex-employee from setting up in competition, express terms will need to be included in the contract. To be valid, they must be reasonable. For example, any such restriction must only cover a specified period and area.
You may also want to prevent ex-employees from targeting your customers or recruiting senior staff.
If challenged, you will have to prove that restrictions go no further than necessary to protect your legitimate business interests.

You cannot enforce any post-termination clauses if you are in breach of contract

Signpost

Download this template written statement of employment from the GOV.UK website
Get employment contracts support and advice from Acas.
Find advice for employers on avoiding discrimination from the Equality and Human Rights Commission.
Find more guidance on holidays and time off and working hours on GOV.UK.
Read guidance on contracts of employment from the Chartered Institute of Personnel and Development (CIPD).

Note

Employment law is complex and is changing rapidly. This factsheet reflects our understanding of the basic legal position as known at the last update. Obtain legal advice on your own specific circumstances and check whether any relevant rules have changed.

Expert quotes

"If your employment contracts don't set out a notice period, senior employees will often be able to claim more than the statutory maximum of 12 weeks' notice if they are dismissed. But if they resign they will never have to give more than a week's notice." - Tim Russell, solicitor and employment tribunal judge

"A written statement of terms of employment may not in itself be a contract of employment (unless that was clearly the intention of the parties). However, it will always be useful evidence of the contractual terms." - Jim Givens, HR Management Solutions