Employment Contracts
All employers should give their employees a contract of employment. We explain why.
The information on this page is intended as a general guidance for UK employers, and may not be appropriate for all situations. You should always consider seeking professional advice before acting.
Please also see the footnote at the bottom of this page.
The Employment Rights Act 1996 requires all employers to provide employees (and workers) with certain information, some of which must be provided within two months of the employee starting.
Contracts of employment are legally required to include certain information as a minimum. A good employment contract will contain additional clauses.
It is essential that employment contracts are kept up to date with changes in legislation. An out of date employment contract may for example provide incorrect holiday entitlements, inadvertently or indirectly discriminate against part time or temporary workers, or not include the statutory requirements for disciplinary and grievance resolution.
Minimum legal requirements
An employer must provide (usually expressed as a contract of employment) to their employee, as a minimum, certain information about the agreement between the employer and their employee.
This includes the name and address of the employer, when the employee is to start work (and the date of any continuous previous employment), their job title (or job description), their normal place of work, hours of work, remuneration (i.e. their salary or wages), pension provision, annual leave, sickness provisions, disciplinary and grievance arrangements and equal opportunities.
It is essential that the contract of employment provided to the employee is legally correct and enforceable.
These details must be provided to an employee within two months of them starting work.
Employment contract checklist
If you have an existing contract (or a contract you are considering using), there are some key issues you should consider.
What holiday entitlements are specified? How are public and statutory holidays calculated?
Employment contracts should explicitly and clearly state the annual leave an employee is entitled to. It should also state what public and statutory holidays they are entitled to (either in addition to or as part of their annual leave entitlement).
Without a clear definition of holiday entitlement, employees may claim additional holiday entitlement (for example, if they believe they should receive public/statutory holidays in addition to their annual leave entitlement). The calculation of pay for public/statutory holidays should also be clearly explained.
Employees should be made aware of any rules about when they need to take their holiday (for example, within a specific holiday year) and whether unused holiday can be carried forward.
It is essential to ensure that employment contracts provide for at least the minimum level of annual leave to which employees are legally entitled.
Recent changes to holiday entitlement (and forthcoming changes) mean that employment contracts should be checked to ensure they comply with current legislative requirements.
Is there a probationary period for new employees?
An employment contract should include a probationary period for new employees (normally for either three or six months). The advantage of including a probationary period is that an employee can be dismissed for unsuccessful completion of their probation without having to go through a full disciplinary procedure.
Employees under probation still have employment rights (for example, not to be discriminated against). However, employment can be terminated due to unsatisfactory performance or conduct (or even that the employee is unsuitable for the role) without enduring a complex and lengthy dismissal process.
Probationary clauses should include an option for the employer to extend the period if satisfactory performance or conduct has not been demonstrated.
What will happen when the employee has reached normal retirement age?
Age discrimination legislation allows employees to request they continue to work beyond the normal retirement age. An employment contract should contain a clause that explains what will happen prior to and when an employee reaches their normal retirement age (and make reference to an appropriate retirement policy).
Without a specific retirement clause, an employee may be able to make a successful claim against their employer for age discrimination.
Is there a smoking policy clause?
The inclusion of a smoking clause into the contract of employment (and the clear prevention of smoking in the workplace) ensures that employees are aware of the restrictions and that a breach of the smoking policy will result in disciplinary action.
If an employer doesn't take reasonable measures to prevent smoking in the workplace, other employees could make a claim against their employer. (Interestingly, it is possible that smokers themselves could also claim their employer didn't adequately prevent them from smoking in the workplace and didn't support them in giving up smoking.)
The clause should cover all enclosed workplaces, including company vehicles.
Are you entitled to make deductions from payroll?
Employers need to make deductions from pay from time to time (for example reclaiming incorrect overpayments or reclaiming monies owed by the employee to the company). A clause should be included to allow an employer to make a deduction from payroll where required.
Without such a clause, an employee could make a claim for unlawful deduction from pay if you deduct their salary for any reason.
Does the contract contain an Internet and email usage clause?
Internet access and email can be misused by employees, with potentially catastrophic effect for an employer. Inappropriate Internet use may cause offence to other employees, compromise the security of IT systems and significantly effect employee productivity. Inappropriate use of email could lead to discrimination or harassment claims, bring the company into disrepute and significantly reduce their productivity.
An employment contract should include a clause to restrict Internet and email use to appropriate company business, clearly inform the employee that inappropriate use may lead to disciplinary action, and explain that Internet access and emails are subject to monitoring by the company.
Without an adequate Internet and email usage clause, companies may be exposed to claims by employees that their rights to privacy (and their human rights) have been compromised.
Is there an adequate law and jurisdiction clause?
For an employment contract to be enforceable, a clause should be included that states what law and jurisdiction will apply.
Is the contract appropriate for both temporary and permanent employees?
A contract must not discriminate between temporary and permanent employees (nor between part time and full time workers). Discrimination does not have to be intentional - it may be inadvertent or indirect. Working practices must not unfairly discriminate.
For example, permanent and temporary employees are entitled to equivalent amounts of holiday, equivalent pay and equivalent benefits.
Temporary contracts must have specific end dates to ensure the right of an employer to terminate the employment contract.
Is there a short term working and temporary lay off clause?
Urgent staff cost reduction is critical for many businesses at some point in their growth. Contracts of employment should include a provision to allow an organisation to reduce staff overheads (i.e. wages and salary costs) by reducing the number of hours worked, cutting the number of days to be worked, or temporarily laying off staff.
Does the contract make reference to policies and procedures?
It is good practice for an employment contract to reference supporting documents. (This means that changes to working practices can be made without having to reissue every employee with a new contract of employment.)
However, if your contract makes reference to other policies and procedures (for example a grievance policy or expenses and benefits procedures), these documents must actually exist.
Are there confidentiality, conflict of interest and other employment clauses?
Employees should be informed of their duty not to disclose confidential information. Similarly, employment contracts should contain clauses that protect their employer from their employee undertaking activities which could compromise the company.
Also, employees who have more than one employer may exceed their working hours (as prescribed by the Working Time Regulations). In such cases, employers can be held liable (even though the employee may be working fewer hours than their legal limit for one employer).
An employment contract should require an employee to disclose all employment to their employer. You should also (by including appropriate wording in their contract) be able to refuse an employee permission to work for another employer if it could compromise their ability to fulfill their role (or compromise safety).
Other considerations
Some organisations will require additional clauses that are appropriate to their needs. For example, organisations who provide medical insurance, company credit cards to employees, make discretionary payments (such as night shift or overtime premiums), expense allowances or those providing use of company vehicles.
If you employ senior or professional people (for example directors, senior managers, high profile roles, research and development staff), additional professional clauses should be considered. Employment contracts for such employees might include confidentiality clauses, restrictive covenants, intellectual property rights and invention clauses.
Including clauses regarding maternity, paternity and adoption practices is useful, particularly to inform employees of their entitlement and to explain that disciplinary action can be taken if they do not follow the appropriate procedures (for example, taking excessive paternity leave or not making appropriate advance arrangements).
Contracts should be appropriate and equitable for all employees, whether they are permanent or temporary (i.e. employed for a fixed term) and whether they work full time or part time. Employment contracts can inadvertently or indirectly discriminate against part time or temporary workers. For example, until recently it was common practice to provide health insurance only to full time permanent employees - such practices are now discriminatory. It is worth considering that sexual discrimination laws are often used in cases where part time discrimination is alleged (as tribunals have accepted that women are more likely to be affected by part time working practices). The potential awards for sexual discrimination are higher than for part time discrimination.
Fixed term (i.e. temporary) workers should have an employment contract that contains a specific end date to allow an employment contract to be legally terminated. (Without a specific end date, an employee could claim that their employment was unfairly terminated.)
Finally, it is worth remembering that in addition to fulfilling an employer's legal obligations, the primary purposes of an employment contract is to clearly define the terms and conditions of employment and to ensure employees do not make incorrect assumptions about their entitlements.
Get Started
Footnote
This information is intended as general guidance for UK employers. If you require more specific explanation, guidance or advice, please contact us. We can provide consultancy if you need more personal assistance.
The information on this website is primarily aimed at UK based organisations, though may be more generally applicable. The information is believed to be correct at time of writing but may be subject to change as legislation is updated and precedents set. THIS INFORMATION MAY NOT NECESSARILY BE APPROPRIATE FOR YOUR ORGANISATION. If in doubt, please contact us or your legal advisers.
All information is copyright, and provided subject to our website terms and conditions.