How to Draft Contracts of Employment for your Business

Do you need help drafting contracts of employment? This handy guide below should give you an excellent starting point.

1. Contractual terms
2. Information to be provided in writing
3. Varying terms and conditions of employment

1. Contractual terms

All contracts of employment must contain the four essential elements necessary for all legally binding contracts. These are:

• An offer
• An acceptance of the offer
• Consideration
• An intention to enter into a legally binding contract

Contracts of employment comprise both express and implied terms.

• Express terms are those that are verbally agreed between the parties and/or are set down in writing.
• Implied terms are those that are unwritten and unspoken but which are nonetheless form part of the contract

Employment legislation requires that a specific range of express terms need to be communicated in writing to the employee by the employer. (See Section 2 below)

It is possible for contracts of employment to provide only those terms which are verbally agreed.. However, this approach is likely to lead to uncertainty, ambiguity and problems in relation to the interpretation of contractual terms.

Terms can be implied into contracts of employment in a number of ways. These include

• Custom and practice in that trade or industry
• Custom and practice within the employer’s business
• Based upon the conduct of the parties themselves

The “consideration” within the contracts of employment will normally be the salary or wages paid to the employee in return for the work that is done for the employer. However, a part of the consideration can take the form of share options or one of any number of other non-cash benefits.

There is almost always a clear intention and wish in employment matters for the parties to enter into a legally binding contract. Some voluntary or family arrangements may have a more doubtful legal basis but the signature of the parties to a written agreement will always remove any doubt as to the intentions of the parties.

2. Information to be provided in writing

The contractual terms that relate to a particular job may all be contained within a single document. However it is quite normal for a number of separate documents to make up the express contractual terms.

Many employers produce a written statement of the main terms and conditions of employment to be read in conjunction with an Employee Handbook, containing the rules, procedures and practices within the employment.

By virtue of Section 1 of the Employment Rights Act 1996, for all employees whose employment lasts for at least one month, a written statement of the main terms and conditions of employment must be provided by the employer.

The written statement must be provided within two calendar months from the beginning of the period of employment.

It is recommended, as best practice for all employers, that all employees receive a written statement regardless of the likely duration of their employment and also that the document is issued prior to or on commencement of the employment.

Whilst the written statement may refer to other documents, some of the particulars must all be contained together within a single document. These are:

• The start date for that period of employment
• The date that continuous employment began
• Job title
• Place of work
• Hours of work
• Payment details
• Holiday entitlement

The remaining particulars which must be provided to the employee and which may be contained in a separate document or documents are:

• Notice periods applicable
• Sickness provisions
• Pension provisions
• Disciplinary and dismissal procedures
• Grievance procedures
• Whether any collective agreements relate to the employment
• Whether work outside the UK for more than a month is required
• Any other essential elements of the contract

When compiling a staff handbook, consideration should be given to the inclusion of all policies and procedures that relate to the employment. The list of potential policies and procedures necessary for inclusion is endless. However, there should certainly be clear written guidelines for employees in all of the areas where any benefits are provided by the employer e.g .time off and also where disciplinary sanctions might result from any failure by the employee to follow the organisation’s rules and guidelines

3. Varying terms and conditions of employment

The need to vary contracts of employment can emerge when economic circumstances change or business needs dictate. Both parties can seek to make variations to a contract of employment.

Where employees seek to vary the contracts of employment, their request will normally relate to a wish to amend working hours or to an increase in salary or wage. However, employees have little alternative but to seek the agreement of the employer in these circumstances.

It is more common for the employer to wish to vary the terms of the contract of employment for reasons relating to a variety of circumstances, such as market conditions, technological changes, financial pressures or efficiency savings and improvements.

Unless there is a contractual right to entitle the employer to vary the contracts of employment as and when it sees fit, any change by the employer which is imposed upon the employee unilaterally is likely to constitute a breach of contract and therefore a risk of legal liability.

Any contractual terms that are varied in this way without the consent of the employee are not legally binding upon the employee until the employee accepts to them, either expressly or by not protesting against them.

Claims for constructive dismissal can result from situations where employers impose variations to the contract of employment without agreement from the employee. In these circumstances employers should take steps to ensure that the possible financial consequences of their actions are factored in to any decision taken.

An employee is entitled to treat himself as constructively dismissed if the employer is:

“guilty of conduct which is a significant breach, going to the root of the contract of employment or a breach which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract… In either case the conduct must be sufficiently serious such as to entitle him to leave at once”.

Therefore, in general terms, if employers choose to unilaterally vary any of the main terms and conditions of employment contained within the written statement issued under Section 1 of the Employment Rights Act 1996, they run the risk of a constructive dismissal claim being successful if the employee affected chooses to bring such a claim.

Therefore, it is more sensible for employers to attempt to reach an agreement with their employees in all circumstances where the main terms and conditions of employment are being varied rather than to run the risk of expensive Employment Tribunal claims being brought by disaffected employees.

However, changes to the rules and procedures within an Employee Handbook are less likely to be classed as “essential or fundamental “terms of the contracts of employment. Employers should therefore include within their Handbook, a clear statement confirming that they reserve the right to revise, amend or supplement the policies and procedures within the Handbook at any time to meet the changing needs of their business.

If employers wish to be able to vary one or more of the fundamental terms of the contracts of employment, such as requiring employees to start and finish their shifts at different times each day, then this flexibility of working arrangements needs either to be part of the contract upon commencement of employment or be introduced with the consent of the employees.