In law, an employment contract can exist when an offer of employment is accepted. That means if you make someone a verbal offer and they accept, a contract exists between you; you are obliged to provide the employee with work, and they are obliged to do that work.
There are obvious problems with verbal contracts. Few people will verbally run through all the terms & conditions governing the relationship and, even if you do, few people will accurately remember what was said. Therefore, verbal agreements carry a real risk of conflict when there's a future disagreement over what the terms were, who said what, or what the interpretation was.
That's why having all the terms & conditions written down in an employment contract document is a good idea.
As an employer, you are legally obliged to give an employee a written statement of particulars of employment. This document sets out the essential terms and conditions that govern the employment relationship. These are things like the worker's name, address, job title, pay, working hours, work location, holiday and so on. This is known as the 'principal statement' and must be provided to the employee on day one.
There are also other terms & conditions that a worker must understand, e.g. pension arrangements, any collective agreements (e.g. with unions or staff associations), grievance & disciplinary procedures and more. This is known as a 'wider statement' and must be provided to the worker within two months of their start date.
The offer letter can (and should) include the terms of the principal statement, but most employers will anyway issue a full employment contract which covers all of the terms within the principal and wider statement, as well as any other terms & conditions they wish to include. This avoids having multiple documents with overlapping purposes.
An employment contract should be carefully drafted. We advise against using a free, downloaded 'boilerplate' contract from the internet because:
All of the above may mean you run into conflict dealing with issues that aren't addressed in the contract. You will also need to update your employment contracts as a result of those issues.
Because employment law changes, as do HR best practices, we recommend that you review your employment contracts fairly regularly, at least once every couple of years or so. We often find that older contracts need attention!
Here are some of the things we address when reviewing or updating an employment contract...
All too often we find an employment contract includes clauses describing policies and processes, rather than the essential employment obligations. For example, setting out expense claim or holiday booking policy rules in the contract. This is a generally a bad idea.
Your policies and procedures will sometimes need to be updated as the business grows and changes. Or perhaps when you just need to clarify or correct a policy.
The problem is that contracts are binding and cannot easily be changed without the employee’s consent. If you have policy and process clauses in your contract, you’re going to have to get consent from your employees every time you update them. If you don’t get that consent, then you could be liable for a breach of contract claim.
On the other hand, if you keep the policies in your handbook and just refer to them from the contract, you’re able to update the policies without needing to negotiate and agree a contractual change.
For example, a contract could say “you must abide by our code of conduct policy in the staff handbook”. That way, you have obliged the employee to follow the rules but you are free to update those rules in the handbook whenever you need to.
Many employers use employment contracts that are derived from generic templates. Sometimes these have been downloaded directly by the employer, or sometimes obtained from a previous HR service provider.
The problem here is that because templates are ‘general purpose’, they may not be tailored to your business needs. There could be clauses in there that are irrelevant. For example, outdated and flowery boilerplate legalese, or clauses talking about bonuses and company cars that may not apply if you don’t provide these.
There might also be clauses missing. Specific obligations that your business requires that wouldn’t apply to everyone. For example, shift work, overseas work, laying off provisions, post-termination restrictions for senior positions, and so on.
Therefore, we recommend ensuring that your employment contracts actually reflect your needs.
You will have employees doing different jobs and on different salaries. Therefore, you will always have some variation in terms and conditions in these areas. However, we sometimes find that an employer has employees doing broadly the same role but on different versions of an employment contract for no good reason.
You must not allow these differences to be discriminatory (for example, part time workers cannot be treated less favourably than full time workers). But also, you want to be able to manage your workforce consistently. Otherwise, you might end up with someone feeling that they’re being unfairly treated because they're on different terms.
There are two related problems here. One is that some clauses in employment contracts are vague, or imprecise, or sometimes incomprehensible. This can lead to differences in understanding between you and an employee, which could lead to a dispute.
If that dispute escalates, an Employment Tribunal will not rewrite a badly written contract clause – they will just strike it out completely, as if it didn’t exist. This is known as the blue pencil test. If you were relying on that clause in a dispute, you’re at a big disadvantage.
We strongly recommend having really clear, well understood employment contracts for this reason.
The other problem are clauses that are excessively verbose. There has been a fashion for using pronominal adverbs to excess when drafting contracts. For example; henceforth, hereafter, hereinafter, heretofore, aforementioned, and so on. This is often combined with using multiple words where one will do.
You won’t always be able to have an employment contract in entirely plain English, but you can certainly cut down the superfluous legalese.
You can generally only modify an employment contract if both parties agree. That means you need to get consent from the employee. It doesn’t matter what the modification is, you will always need to get the employee’s consent.
We find that benign changes to contracts are often accepted with little trouble, provided that the reasons for the change are clearly explained and the new contract is on no less favourable terms overall. Employees may be very wary about any more substantial changes you propose to make. Some may even be suspicious, depending upon the nature of the changes and your relationship with them.
We can help you with managing this change with your employees, and we can assist you with negotiations to gain consent.
If an employee does not consent to a change to their employment contract, there may be other options. We can advise you on your alternatives if you’re unsuccessful in gaining consent.
If you are planning to make some changes to your employment contracts, get in touch with us. Alternatively, we can review your contracts and give you our recommendations on what, if any, changes are needed.
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