Updated: Jul 2, 2020
What is a contract of employment?
A contract of employment is an agreement between an employer and employee and is the basis of the employment relationship.
Do general principles of contract law apply to a contract of employment? Generally, yes. A contract of employment is created just like other contracts by an offer by one party which is accepted by the other with both parties intending to create legal relations. However, there is some specific caselaw relating to contracts of employment, and in particular, its termination. In addition, the terms of an employment contract are affected by statute more than some other forms of contract.
A contract is made when an offer of employment is accepted.
A number of rights and duties, enforceable through the courts, arise as soon as this happens.
You may not have anything in writing, but a contract will still exist. This is because your agreement to work for your employer and your employer’s agreement to pay you for your work forms a contract.
The individual contract and its sources
A contract of employment will usually be made up of two types of contractual terms. These are:
1. Express contractual terms
Express terms in an employment contract are those that are explicitly agreed between the employee and the employer and may be written or oral. The main examples are job offers and written statements of terms which I will deal with later. There is no formal requirement that a job offer should be in writing.
They can include:
amount of wages, including any overtime or bonus pay
hours of work, including overtime hours (there is a legal limit for most employees on the maximum number of hours they can work per week)
holiday pay, including how much time off you are entitled to (nearly all full-time workers are entitled by law to 28 days' paid holiday - they may be entitled to more under their contract. Part-time workers are entitled to a pro rata amount)
how much warning (notice) the employer must give you if you are dismissed.
The express contractual terms may not be in one written document but may be in a number of different documents. They may not be written at all. The express terms may be found in:
the job advertisement
a written statement of main terms and conditions
any letters sent by your employer to you before you started work
anything you were asked to sign when or since you started work
instructions or announcements made by your employer on a notice board at work
an office manual or staff handbook
What should an employer consider in relation to a job offer? Before confirming a job offer it is wise for the employer to institute the following checks:
That the employee is not bound by any post-termination restrictions that prevent him from performing his duties;
That the employee can produce a document which satisfies the Immigration, Asylum and Nationality Act 1996. The relevant documents are set out in the updated Home Office guidance on Prevention of Illegal working. Failure to obtain such a document may be a criminal offence resulting in fines or imprisonment;
That all legal/regulatory requirements are met (e.g. regarding driving passenger or heavy goods vehicles, CRB checks, regulatory body rules);
That the employee’s references are valid and satisfactory and
That the employee’s references are valid and satisfactory.
What are the requirements in relation to a written statement? An employer must give each employee who has been employed for more than a month (but not workers) within 2 months of commencement of employment a written statement setting out the main particulars of their employment (see Section 1 of the Employment Rights Act 1996). This statement will not necessarily cover every aspect of the contract but can provide important evidence of the main terms and conditions. Individuals who are not employees - for example independent contractors or freelance agents - are not entitled to a statement.
What if the particulars of employment are varied? If there is any variation in the particulars of employment, all changes must be notified to employees individually, at the latest, not more than one month after the change unless the change relates only to the name of the employer or identity of employer. In that case, the notice need only inform the employee of the change of name or identity. What information must the written statement include? The written statement must cover:
the names of the employer and the employee;
the date when the employment (and the period of continuous employment) began;
remuneration and the intervals at which it is to be paid;
hours of work;
entitlement to sick leave, including any entitlement to sick pay;
pensions and pension schemes;
the entitlement of employer and employee to notice of termination;
job title or a brief job description;
where it is not permanent, the period for which the employment is expected to continue or, if it is for a fixed term, the date when it is to end;
either the place of work or, if the employee is required or allowed to work in more than one location, an indication of this and of the employer's address; and
details of the existence of any relevant collective agreements which directly affect the terms and conditions of the employee's employment – including, where the employer is not a party, the persons by whom they were made.
If an employee is normally employed in the UK but will be required to work abroad for the same employer for a period of more than one month, the statement must also cover:
the period for which the employment abroad is to last;
the currency in which the employee is to be paid;
any additional pay or benefits; and
terms relating to the employee's return to the UK.
Where there are no particulars to be given for one of the items required to be covered in the statement (for example, where there is no pension entitlement), this must be indicated.
The statement must also include a note giving certain details of the employer's disciplinary and grievance procedures, and stating whether or not a pensions contracting-out certificate is in force for the employment in question.
Collective agreements between employers and trade unions are not binding on those parties but terms of the agreements may be incorporated into individual contracts of employment, either expressly or by implication, and so become legally binding between employers and their employees.
2. Implied contractual terms
Implied terms in an employment contract are those which are not specifically agreed between the employer and employee.
Implied terms are:
general terms which are implied into most contracts of employment
terms implied by custom and practice
terms from agreements made with the employer by a trade union or staff association – usually called collective agreements.
General implied terms – duties on employer and employee
The following duties and obligations will usually be implied into any contract of employment:
the employee and employer have a duty of trust and confidence to each other. This means, for example, that if you give your employer’s industrial secrets to a competitor, you will have broken an implied contractual term of trust
the employer and employee have a duty of care towards each other and other employees. This means, for example, that the employer should provide a safe working environment for the employee and that the employee should use machinery safely
the employee has a duty to obey any reasonable instructions given by the employer. There is no legal definition of reasonable, but it would not be reasonable to tell an employee to do something unlawful, for example, a lorry driver should not be told to drive an uninsured or untaxed vehicle
the employer has a duty to pay your wages and provide work. As long as you are willing to work, your employer must pay your wages even if no work is available, unless your contract says otherwise.
the employee has a duty to be honest, to be reasonably competent to do the job, to cooperate with the employer in the performance of the job, to maintain fidelity, not to impede the employer’s business and to account
the employer has a duty to pay wages, to co-operate with the employee and (sometimes) to provide work.
Terms implied by custom and practice
When dealing with a particular employment problem, there may be no express contractual term covering the matter. In such a case, it is helpful to look at what has happened to other employees in the workplace. This is because if other employees have been given this right, an employee can argue that he also has the right under ‘custom and practice.’ Some implied terms can become part of the contract because of the employer and employee's behaviour, through custom and practice over time, or through a firm's rules (especially if the employee has been made aware of them and given access to them).
Remedies for breach of contract
If the employee breaches the contract of employment the employer may:
Discipline the employee
Dismiss the employee (if the breach is sufficiently material)
Sue the employee for damages for breach of contract
Refuse to pay the employee the whole of the wages due for any period during which the employee takes industrial action or does not perform part or all of his duties
Obtain an injunction restraining future breaches for the contract if he can show that such breaches are likely to occur, damages would be inadequate, that he will suffer loss as a result of the breaches.
If the employer is in serious breach of any of his obligations the employee may:
Protest at the breaches but continue to work and bring proceedings agains