Decoding Employment Contracts: Essentials for Employers and Employees

What is an employment contract? 

An employment contract is a legally binding agreement signed by the employee and employer, stating both parties' rights, responsibilities and obligations during the period of employment. 

Who enters into an employment contract? 

Employers are legally obliged to provide an employment contract, in writing, within 2 months from when an employee’s period of employment begins. This includes both full-time and part-time employees. Importantly, a contract exists between an employer and employee once an employee affirms an offer of employment, regardless of whether this has yet been consolidated in writing. 

This article will consider the requirements of an employment contract for full-time employees as opposed to part-time or self-employed individuals. A full-time employee usually works 35 to 40 hours per week and is employed permanently, with no predetermined end date to their term of employment. 

Why are employment contracts important? 

Employment contracts are vital so employees can understand their rights and obligations. This includes the standards they are required to meet and what actions will be taken for non-compliance. In addition to providing clarity, employment contracts can reduce the risk that one party will take legal action against another at a future date, offering important protection for an employer. 

An employer is able to save time and money by limiting an employee's overtime pay and holiday pay. Furthermore, when a business deals with confidential information, a confidentiality clause may be added to the contract to protect the business by prohibiting employees from disclosing confidential or commercially sensitive information. 

What are the key sections of an employment contract? 

An employment contract typically includes: 

Title

The employment contract should be given a title, so its purpose is well known. For example, ‘Employment Agreement’. 

The parties

The agreement typically begins by addressing the parties who are entering the contract. The contract should clearly state the business name, the address of the workplace, the name of the new employee and their address. This clause should also note that the address of the workplace is subject to change. 

Terms and conditions 

A full-time worker can work a maximum of 48 hours per week, as per the Working Time Regulations 1998. This clause should specify whether employees are able to work from home, the policy for working outside the office and for working weekends and nights. It may also include a clause requiring employees to work additional hours if requested by the employer. Furthermore, this clause should outline the means of compensation, how overtime is calculated and if there are any annual bonuses. 

Duration of employment 

This specifies the duration of employment. The clause may also include whether there is a probationary period for new employees, during which employers are allowed to give a short-notice period for termination, and how long this period is. This trial period may be extended if this is written into the contract. 

Job Responsibilities 

This includes the employee’s position, job description and work schedule as advertised, with any agreed amendments. The department and department head of the new employee should also be included. If necessary, this section can present a very comprehensive outline of responsibilities, assigning percentages to each responsibility. The new employee should be fully aware of what is expected of them during employment. 

It is also a good idea to include a clause stating the employee may be expected to carry out any other reasonable duties falling within the parameters of their role.

Wages 

This should include the employee’s full salary before tax and national insurance, as well as the date of payment. Crucially, there should also be mention of all the circumstances when an employer is able to make deductions from the employee’s salary since an employer is not able to deduct money without this clause. 

Benefits 

This should specify what expenses are covered by the company, such as travel costs for business purposes. Furthermore, there should be a clause explicitly stating that proof of payment is required to claim expenses back. Proof of payment should include receipts or invoices of transactions. 

Holidays 

This section should note how many holiday days per year the employee is entitled to, and whether bank holidays and national holidays are included in this. It should include information on sick leave, sick pay entitlement, the policy for sickness absence, emergencies, and unpaid leave. Also, this should specify when a holiday year runs, whether the employee can roll over holiday into the next holiday year, and whether an employee can take holiday after giving notice, and pay in lieu of unused holiday time. 

It is important to note that there are minimum statutory requirements for employee leave which cannot be fettered. As a result, these regulations must be complied with for a valid contract. For more information on employee leave click here.

Pension 

This section should state whether the employee will be included in the company’s pension scheme, given access to a stakeholder pension scheme, or if there is no pension scheme in place. Consider that as of now, an employer with at least 5 employees is required to minimally offer access to a stakeholder pension. 

Termination 

This section should explain how much notice is to be given before termination, whether notice must be written, whether severance pay will be given and how much this would be. It should also include a description of any actions of gross misconduct which could lead to dismissal without notice. 

Grievance and disciplinary procedure 

This section should explain how an employee can raise issues, concerns or complaints about their employer and employment, and how these concerns will be dealt with by the company. 

Severability 

This is a standard clause in all employment contracts, entailing that each clause is independent of the other clauses. Therefore, if one clause is invalid or inapplicable, the rest of the contract remains valid. 

Prior agreements

This is another standard clause. It means all prior written or oral agreements made are invalid once both parties have signed the contract. 

Other aspects which may be included: 

Jurisdiction 

This section states which jurisdiction of law applies to the contract - England and Wales? Scotland? Northern Ireland? 

Confidentiality agreement  

This prohibits employees from disclosing sensitive information. 

Non-compete agreement  

This would prohibit employees from working with competitors for a period of time after termination. The time must be reasonable, specified in the agreement and include its purpose. For instance, this agreement lasts whilst a specific project is being completed. 

Health and safety risks 

If there are significant health and safety risks involved during employment, such as operating heavy machinery, it would be a good idea for the employer to state their commitment to health and safety in the workplace, and outline how to avoid and combat accidents in the workplace. 

Privacy policy 

This could outline the use of social media and email usage in the office, as well as the handling of employee data. 

- Author: Neha Tavra

- Author: Neha Tavra

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DISCLAIMER

This article has been written by law students for the sole purpose of providing informative insight. The information in this article is intended for educational purposes only and does not constitute legal advice, nor should the information be used for the purpose of advising clients. You should seek independent legal advice before relying on any of the information provided in this article.

Sources

Workspace, 'Guide to writing contracts of employment' (Workspace, 2 September 2011) <https://www.workspace.co.uk/content-hub/business-insight/guide-to-writing-contracts-of-employment> accessed 7 November 2022

Matthew Reymes Cole, 'How do you Write a Contract of Employment?' (Croner, 14 November 2018) <https://croner.co.uk/resources/contracts-documentation/how-do-you-write-a-contract-of-employment/> accessed 7 November 2022

Indeed, 'How to Write an Employment Contract (With Template)' (Indeed, 30 November 2020) <https://www.indeed.com/hire/c/info/employer-contract> accessed 7 November 2022