Why use a contract?
"Contract" means the same as "agreement". Apart from dealings in land and property, a verbal contract just as binding as a written contract. The problem is that it is usually very difficult to prove the terms of a verbal contract if the other person fails to keep his word.
For an employment contract to be binding, each side has to give something of value for it. This may be money, goods, a promise or anything worth money to the other of them. The value can be infinitely small. It follows that a promise to make a gift is not a contract.
An employment contract, as you would expect, regulates the relationship between employer and employee. Parliament regulated the first employment contract long ago, but the modern law started with the Redundancy Payments Act 1965, followed by the Employment protection Act 1975. The 1975 Act set up the whole employment tribunal system as apart from the formal court system. Most of the law regulating an employment contract is now contained in a whole raft of legislation passed in the last ten years. Particulars or contract?
The Employment Act 2002 states that an employer must provide "particulars of employment" to an employee within four weeks of him / her starting work. This is to protect the employee only! It is not the same as a contract of employment. As an employer, you discharge your obligations by providing the particulars but you get nothing back in return. The reason why most employers use a "contract" is to obtain the agreement of the employee to comply with all the items contained in it, which regulate the employment or protect the employer. Both employer and employee are bound by the terms offered and accepted.
Often the employment contract is verbally agreed and not written down. Even if there is no written employment contract, an oral contract of employment exists as soon as an employee starts work. The precise terms however, may be subject to a great deal of misunderstanding. However, the provision of particulars specified above, while providing little protection to an employer, do provide the basis of the employment contract. So, if there is no other written contract, those terms would be deemed to be evidence of an employment contract.
Would you like to read full information about particulars of employment you have to provide by law, whether by including in the contract or alone? What terms do you want?
Here are some matters to consider when preparing a contract of employment.
- Employers employing fewer than 20 people are no longer exempt from the bulk of the employment protection legislation. The provisions relating to grievance and disciplinary procedures and to requirements for a statement of terms of employment now apply to all employers, regardless of size.
- Make sure the employment contract is agreed before the employment starts. There is always a tendency to want the new man to start "yesterday", with the contract to follow. However, it is difficult in the first few weeks to take the strong view you would have imposed eight weeks earlier. This is particularly important with less common provisions such as the necessity for employee to submit to a body search at close of business, or to move to a new work place.
- If you employ more than one person, there is a fine balance between tailoring the contract to suit the employee on the one hand and providing uniformity for fairness on the other hand. So far as possible we advise you to use as few versions as possible. It is particularly important that some staff are not "preferred" by allowing concessions which are not necessary for the job, such as long lunch hours, excessive motoring allowance or membership of an executive pension scheme. The key question to ask in any case of differentiation is "Is it reasonable to make this concession to this person in the light of her / his job, pay and circumstances?" It goes without saying that standardization is particularly important within a section of staff doing "similar" work.
- The avoidance of comparisons between staff contracts is easier among more senior staff. Even here however, an evening of social mixing can result in many secrets passing to people not entitled to receive them, so remember to treat all employers equally.
- Remember that intellectual property - domain names, copyright, trade marks, have far greater proportionate value than they did ten years ago. Even junior staff are often in a position to damage intellectual property - intentionally or otherwise. Protect yourself in the contract.
- You may think you can protect your intellectual property by providing that an employee may not set up in competition to you. That is a fallacy. Provisions against competition are contrary to national policy. To be effective they must not be unreasonable. Reasonableness depends on the circumstances. It applies to type of work, duration of restriction and geographical extent of restriction.
- Bonus arrangements can be discretionary or contractual. A discretionary bonus has no value as an incentive. A contractual bonus does. A bonus arrangement does not have to be expressed in no more than ten words, but it does have to be specific. A good idea is to put it into a schedule to the contract, where you can differentiate easily between staff members. Spell it out point by point to avoid misunderstanding.
- Use the employment contract to build in flexibility for you. Do not specify that the work shall be at, for example, "44, East Street", but "at an address within ten miles of Antown parish church". Use the same flexibility with job descriptions, particularly in a small company, so that people can be re-deployed without undue difficulty.
- Prepare and execute a good interview and employment system. In particular, make sure the interviewee receives a good job description and business CV as early as possible and that the job description is carried into the contract.
- Do maintain appropriate policies and make sure they are in writing. Many businesses place them in a "procedure manual" or staff handbook. The most important areas are:
- E-mail, Internet and privacy;
- Health and safety
- Discrimination
If you are unfortunate enough to be defending an application before an employment tribunal, you will be off to a good start if you have complied with the law, and operated sensible policies.
- Holiday provisions need to be thorough but simple. Write the contract so that an employee cannot give notice and then spend it on holiday.
- Sickness provisions may be an area for negotiation. Beware of the employer's position being eroded to the point of vagueness. Whatever is agreed should be clearly and firmly stated.
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