How to Write an Employment Contract
Already employ staff or currently hiring? Understanding employment contracts is vital. Here we look at what you need to know...
A contract of employment exists as soon as you offer an applicant a job – regardless of whether it is in writing or not. Because of this, it is important to know what a reasonable employment contract should contain – a well-drafted one will ensure a member of staff understands their role perfectly and reduces the risk of disputes.
As well as helping you draft an employment contract, this article will provide an overview of your own obligations towards an employee, and terms you can – and cannot – enforce in an employment contract.
What are some basics I need to know about employment contracts?
As mentioned above, a contract of employment comes into existence when you offer an applicant a job, regardless of whether it is in writing. You should therefore be wary of making a job offer before you are sure on a candidate; make it clear during the interview and selection stage that at no point will you be formally offering them a role. You can specify the contract to be conditional on the applicant providing you with evidence of suitability, such as qualifications or references.
When people think of employment contracts, they will often be thinking of the written statements of terms and conditions, which provide evidence of the contractual terms you and the employee have agreed.
You must give an employee a written statement within two months of them starting work with you, or they will be able to complain to an employment tribunal. If the job is to last less than two months, you must give them a written statement before it ends (unless it is to last less than a month).
Whilst you won’t be fined for not providing a written statement, if you are found liable on another ground such as unfair dismissal the tribunal can increase a claimant’s damages by up to four weeks’ pay.
A written statement is not necessarily exhaustive, and other documents such as staff handbooks, job offer letters and policy documents might also form part of the overall employment contract. Indeed, even unwritten customs in your business might form part of the contract, although you should ensure that everything important is written down somewhere.
There are some limits in what you can and can’t put in employment contracts. All contracts contain some implied terms about the employer/employee relationship, regardless of whether they are actually written down. In addition, you cannot use a contract to override certain employment rights.
Finally, you are not allowed to vary the terms of the contract without the employee’s consent, so you should always get their agreement if you want to change something. If you fail to get their permission before changing a contract, they could resign and claim constructive dismissal.
If you do want to change any of the terms and conditions, you must tell the employee, in writing, within a month of the variation.
What should be in the written statement?
A written statement can either be an exhaustive list of terms and conditions in itself, or a ‘principal statement’ containing reference to other documents that form part of the contract, such as staff handbooks or grievance procedures.
Certain things that the principal statement must contain are:
- The name of the employer,
- The employee’s name,
- Job title or a description of work,
- What date the employment will start, times and rates of pay, hours of work (including overtime) and holiday entitlement – including whether or not
- this includes public holidays,
- Their place of work including whether they might have to relocate and if an employee will work in different places, where these will be and the employer’s principal address
The principal statement should also at least contain reference to your business’ disciplinary and grievance procedures – including who to contact with a grievance and how disciplinary issues will be handled as well as sick pay and procedures.
It should also contain the terms and conditions related to pensions, notice periods (including the length of notice which they are entitled to and must give before leaving the company), any end dates or fixed periods of employment and any collective agreements affecting the terms of employment.
What non-contractual terms should I include?
It’s important not to box yourself in with an employment contract by including too-narrow terms and conditions that you will find difficult to vary at a later stage. It is a good idea to keep terms as wide as possible to allow yourself maximum flexibility.
Remember, again, that any job offer will complete an employment contract; make it clear during the interview that nobody is being offered a job yet, and when you do make an offer, remember to state the contract will be governed by your written terms and conditions.
When writing the job description in an employee’s contract, couch it in terms that give you the most flexibility. Always include a statement that you reserve the right to amend the job description at a later stage, to accommodate changes in the business later on. It is also crucially important that you reserve the right to change where an employee works; failing to do this will mean you could be in breach of contract if you have to move premises.
Benefits such as bonuses should generally be made ‘non-contractual’, so you are not necessarily bound if you want to change or withdraw them at a later stage. Whilst you should identify the specific benefits as non-contractual in your written statement, you should be aware that this does not quite give you carte blanche to take them away as you please; if an employee has come to have ‘reasonable’ expectations of a benefit, a tribunal might conclude that the benefit was in fact contractual.
Finally, you should reserve as much flexibility as possible when it comes to dealing with disciplinary matters. Whilst you should generally follow the Acas Code of Practice and apply the rules consistently and fairly, reserve the right to enter the process at different stages depending on the seriousness of the offence.
What are the implied terms in employment contracts?
In addition to explicit terms, there are some unwritten rules that apply to all employment contracts regardless of whether you specify them or not. You do have a duty to give employees information about their rights.
An employment contract contains certain duties that the employer and employee must fulfil. In relation to the employer, they must not do anything to erode the relationship of ‘trust and confidence’ with employees. An example of this might be where an employer ignores a grievance or makes a change to working arrangements that negatively affects the employee without good reason. Although this is a mutual duty, the vast majority of tribunal claims are brought against employers.
Also employers are obliged to provide a safe, secure and healthy working environment. This will include health and safety training, carrying out risk assessments, providing for safe working generally and dealing with grievances promptly and fully. Make sure you take all grievances seriously and give them the attention they deserve.
Employees have a duty to serve the employer faithfully and honestly. This is the other side of the ‘trust and confidence’ duty, not to detract from or compete with the employer’s business or reveal confidential information. Set out clearly what you consider to be confidential in the employment contract. Finally employees have a duty to obey reasonable instructions, work with due diligence and skill and look after the employer’s property.
Employees also have certain statutory rights implied into an employment contract, which generally cannot be overridden by written terms. These include entitlement to notice periods, the right not to be discriminated against, the right to belong to a trade union and the rights related to minimum notice periods and pay.
What are some common issues of employment contracts I should be aware of?
One of the most complex areas of employment law relates to hours of work, rest periods and lexible working requests. There are various maximum and minimum periods you should be aware of; it is a good idea to take legal advice if you are unsure, and you should also read the government’s detailed guidance on the issue here.
Employees also have a right to a minimum period of holiday per year – they are allowed 5.6 weeks’ annual leave on a pro rata basis and must take a minimum of four weeks of this.
Dismissing an employee is always a contentious process, and can give rise to a claim for unfair dismissal, breach of contract, or discrimination. Make sure you set out exactly how and when you can terminate their employment in their contract, and follow a fair dismissal procedure (see the linked article on how to do this).
You should also ensure that benefits are distributed fairly amongst employees – be especially wary of favouring employees on the grounds of sex, race or other ‘protected characteristics’ under the Equality Act 2010. Even if the benefits are non-contractual, ensure you spell out clearly how they will be provided and on what basis.
Make sure you put a clause in the contract that states that you own any intellectual property created by an employee in the course of their job; whilst this should be the case anyway, it never hurts to spell it out.
On the topic of sensitive information, remember to put a confidentiality clause in an employee’s contract, stating their duty to protect your trade secrets and what you consider to be confidential information.
One difficult area for many employers is trying to stop ex-members of staff from setting up in business and competing with them. To minimise the risk of this, you should put a clause in your written statement preventing them from setting up in competition, or targeting your customers or staff. Any restriction must go no further than necessary to protect your business interest, so limit these clauses by time or area to make them reasonable.
Understanding and sticking to employment law is critical for any small business employer; and it’s important to make sure that all contracts between you and your staff member are up-to-date and comprehensive.