Home Business Employment Law for Business What is a Contract of Employment?

What is a Contract of Employment?

As an employer it is your responsibility to keep abreast of any changes in the law and to ensure that when taking on new staff, or renewing contracts for existing staff, that your practices comply with current legislation. As such, it is incumbent upon you to ensure that you provide legally compliant contracts of employment, setting out the rights and responsibilities of both you and your employees.

By understanding ‘what is a contract of employment?’ this will help you to adequately and legitimately meet the economical and operational needs of both your business and workforce.

The definition of a contract of employment

So what is a contract of employment and how can it be defined?

Contracts of employment, by definition, are legally binding agreements between the employer and employee. As such, the contract sets out the terms and conditions governing that working relationship.

The employment contract comes into existence at the point a potential employee accepts your offer of a job. Thereafter, both you and the employee will become bound by the terms of the contract until it comes to an end, for example, through dismissal, resignation or any agreed variation in the contractual terms.

What is a contract of employment for?

The purpose of a contract of employment is to ensure that both you and your employees have a clear understanding of your rights and responsibilities during the term of employment. In this way the employment contract will help to clarify your working relationship, avoid confusion and thereby reduce the potential for any conflict that may arise at a later date.

The contract of employment also offers security and protection for both parties. For the employee, the contract provides the certainty of clearly defined rights, with legal redress where those rights are breached. For the employer, a contract can provide you with the confidence that your employees have clearly acknowledged their responsibilities and agreed to comply with those terms.

As an employer, the contract of employment can also help to protect your legitimate business interests, for example, against competition or unnecessary disclosure of confidential information. A typical provision here may include a restrictive covenant, where an employee is prohibited post-termination from engaging in a similar business within a specified geographical area for a set period of time.

Different types of contracts of employment

Whilst a person’s employment status will determine the extent of employer-employee rights and responsibilities, the contract of employment will regulate your working relationship with any type of employee. This includes full time, part time, fixed term, temporary or casual workers.

Even in zero hour contracts, where there is no obligation on you to offer work or for workers to accept, there are statutory rights and obligations that govern that relationship, for example, you cannot seek to restrict zero-contract workers from accepting work from other employers.

Contract of service or contract for service

When differentiating between what is a contract of employment and what is a contract for services, the law makes a clear distinction between a contract of service and a contract for service.

Whilst a contract of service governs the relationship between employer and employee, a contract for services refers to an agreement between client and contractor, ie; where work is carried out on a self-employed basis. Here there is no question of any employment relationship.

What is a contract of employment made up of?

When examining ‘what is a contract of employment?’ it is important to consider the circumstances which may give rise to the terms of that contract. Contractual terms do not necessarily need to be in writing, or even contained within a contract of employment in order to be legally binding. Indeed, the contract may be written, verbal or even both.

Written terms may be incorporated within all kinds of documentation including, for example, any offer letter. A verbal contract can comprise of matters discussed with a potential employee during interview or otherwise prior to accepting the job.

However, verbal agreements can be difficult to evidence in the event of any disputes. As an employer, it is therefore prudent to ensure that all terms are clearly agreed with your employee within a written contract of employment, signed by both parties.

What is a contract of employment express term?

Express terms are those explicitly agreed between you and your employee, either verbally or in writing. These typically relate to core contractual matters including salary, sickness and disability, working hours, holiday entitlement and notice periods for dismissal or resignation.

They may also include provisions relating to disciplinary and grievance procedures, as well as pension entitlement, although these are often incorporated within documents other than the employment contract.

What is a contract of employment implied term?

Implied terms are terms that are not expressly or specifically stated, either in writing or verbally, but are read into the contract of employment and are still contractually binding. Often these terms are so obvious they are assumed, for example, the obligation of mutual trust and confidence, or the duty to provide a safe working environment for your employees.

Other terms may be implied into an employment contract by a court or tribunal where a term is necessary to give a contract business efficacy, or in accordance with normal custom or practice.

What is a contract of employment term implied by statute?

Additional terms are automatically enshrined (or implied) by statute, for example, the employee’s right to the minimum wage, statutory sick pay or redundancy pay. Whilst both you and your employee are free to agree whatever terms you wish, you cannot seek to contract out of, or vary, these statutory rights.

Any terms seeking to limit or restrict these statutory rights will not be enforceable and the employee will retain the right prescribed by law. Needless to say, this principle extends to any term that has the effect of discriminating against protected characteristics including age, sex, disability, race, religion or belief. A typical example here would be the right to maternity and paternity leave.

What is a contract of employment variation of terms?

An existing contract of employment can be varied only with the agreement of both parties. In the absence of any flexibility clause contained within the contract, changes must be agreed by both parties or through a collective agreement.

A collective agreement is an agreement formed with employee representatives from, for example, trade unions or staff associations. This allows for collective bargaining of terms and conditions including working hours or pay.

The provision of a written statement of particulars

By law an employee is legally entitled to a written statement of particulars no later than two months after the employment commences.

However, when determining ‘what is a contract of employment?’ a distinction must be drawn here. A written statement of particulars does not constitute the contract of employment, although it is evidence of the same. It must also set out the main terms and conditions that will govern the working relationship including:

  • the names of the parties
  • job title or description
  • the date when the employment began
  • place and hours of work
  • how much and how often an employee will be paid
  • holiday and sick pay entitlement
  • notice of termination.

What is a contract of employment breach?

The contract of employment sets out legally enforceable terms and conditions that govern the relationship between you and your employee. In circumstances where either party breaks one of those terms, this is known as breach of contract. Typical examples of breach include an employee’s failure to attend work without good reason or an employer’s breach for non-payment of wages.

Often these types of dispute can be resolved informally, or failing that, by way of any disciplinary or grievance procedure set out within the contract itself. However, where a dispute between you and an employee cannot otherwise be resolved, the matter may result in legal proceedings where the terms of the employment contract will come under close scrutiny by the court or tribunal.

In these circumstances, any ambiguity in the terms of the contract, clauses drafted poorly or too widely, or any attempts to unreasonably restrict the rights of employees, may be found to be unenforceable in favour of your employee.

Should I seek legal advice?

There is a complex framework of legislation governing employment law rights and responsibilities, not least the law relating to the contract of employment.

Understanding ‘what is a contract of employment?’ can be central to understanding what is legally required of you as an employer. In circumstances where you get the law wrong, the financial and practical consequences for your business can be serious.

By securing expert legal advice from an experienced employment law specialist you can be confident that you are complying with the law, whilst meeting the economical and operational needs of both your business and workforce.

Your lawyer will be able to help you safely navigate the legalities of ‘what is a contract of employment?’ – from drafting legally-complaint contracts, to advice and representation for any contractual disputes that may arise.

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