Employment Contracts

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It is advisable for employers to issue written contracts to their employees. Well-drafted written contracts give both parties certainty about their rights and responsibilities. They also offer employers the opportunity to protect their business interests.

What needs to be considered?

Employers are legally required to confirm certain terms and conditions of employment in a written statement of employment particulars and by issuing a written contract they can discharge this duty.

Deciding the employer’s needs

When drafting employment contracts, employers should first assess what is appropriate for their organisation and particular employees. Employment contracts vary enormously, from detailed agreements for executive directors, to relatively short, standard-form contracts for others.Employers need to consider which type of contract is appropriate for the employee in question.

For example, senior executives’ contracts are likely to require specific, detailed provisions to protect the employer’s business interests. However, an employer that issues junior employees with overly legalistic and lengthy contracts may put them off accepting a job offer in the first place. The key is getting it right in the first place.

Using standard terms

Standard terms can be a useful and efficient way of setting out contractual rights and obligations, particularly where the employer has a number of employees in roles of a similar level. By using a standard contract, the employer can prevent different terms relating to pay and benefits creeping in for different employees and reduce the likelihood of equal pay and discrimination claims. By using standard terms, employers can also reduce the time that they spend preparing contracts, as well as the cost of this.

However, employers should take care to consider if there is anything different or unique about a particular employee’s job or circumstances that requires bespoke drafting of the contract. If there is, it is important that the employer includes any non-standard terms in the contract. This should avoid any future uncertainty or disputes about the individual’s tailored terms and conditions.

It may be efficient for employers to use a detailed standard template contract from for senior staff and executives, provided that the template is only treated only as a starting point and is adapted according to the specific requirements of the particular role. Contracts should be individual based on particular remuneration and benefits packages, and to protect the employer’s confidential information and business interests if the contract is terminated.

Formation of the contract

The basic elements required to form a contract are:

Offer, acceptance, consideration, intention to create legal relations, and certainty of terms.

The above elements are often manifested in an employment relationship in the following way:

Offer and acceptance – the employee receives an offer letter with the contract and signs and returns the contract.

Consideration – the employer pays a salary and provides benefits to the employee, in exchange for the employee carrying out work.

Intention to create legal relations – evidenced by the fact that the employer has issued a contract and the employee has signed it.

Certainty of terms – the terms are clearly set out in writing or agreed verbally.

For an employment contract to be formed there is no legal requirement for it to be in writing. It is possible to demonstrate the elements above when terms have not been put in writing. For example, acceptance will usually be implied if the employee begins working in accordance with verbally agreed terms. However, as mentioned above, it is advisable for employers to issue written contracts.

Importance of having written terms

There are obvious benefits for both employers and employees of having the employment arrangements set out in writing. Without written terms, there is scope for dispute, with both parties being unclear about what they are entitled to receive and required to do. The employer may have difficulty enforcing an employee’s obligations under the contract if those obligations are not written down and it is likely to be harder to justify disciplinary action against an employee who has failed to meet his or her employee obligations when these are not explicit. If entitlement to contractual benefits is disputed, the absence of written terms could make the employer vulnerable to breach of contract and constructive dismissal claims.

If there is a dispute about what was contractually agreed, the first thing that a court or tribunal will do is look at written terms if there are any. Therefore, employers should ensure that contracts, and any additional documentation that they wish to incorporate into them, accurately reflect the terms on which they intend to rely as the courts tend to interpret any ambiguity in favour of employees.

The employer will also be in breach of its requirement to provide a statement of employment terms if it provides nothing in writing about those terms.

Evidence of acceptance

Although there is no legal requirement for employees to sign their contract of employment, it is advisable for employers to require this. Disputes about what has been agreed can arise if the employer failed to obtain evidence that the employee received the contract and accepted its terms. Employers that fail to obtain evidence (such as a signature) indicating agreement may, at a later date, have to demonstrate an “unequivocal act implying acceptance” of the terms by the employee.

Where the employer is unable to obtain a signature indicating the employee’s acceptance of contractual terms, it is advisable for it to try to establish the reason for the employee’s failure to sign. If the matter is not resolved, it should write to the employee stating that, by continuing to work, he or she is accepting the terms of the contract.

If you’re about to recruit or have existing staff without an employment contract, then let us know.