Contract of employmentThis week we’re sharing a great guest post from one of our Associate Consultants –  Mara Thorne, who is addressing some common myths around contracts of employment.  We get a lot of questions on this topic, so she’ll be looking at – are they necessary at all, whether they have to be in writing, whether they need to be signed in order to be valid, and how to ensure any changes are accepted.  But before we get started, firstly, it is important to understand what a contract of employment actually is.  So over to Mara.

Any “contract” is a legally-binding agreement between parties who have both the mental capacity to understand what they are doing, and the intention of being bound by it.  There has to be something in it for both parties (known in the jargon as “consideration”).  In simple terms, a contract of employment says: “You will work for me doing these duties, at these times, in this place, and in return I shall pay you this much, and give you these holidays, and these benefits…”

But there is frequently confusion over the format and contents of a contract of employment, not least because of the different terminology that exists.

What does the law require?

Many people think a contract of employment needs to be a long, legalistic document headed “Contract of Employment”, opening with a list of definitions, liberally sprinkled with words like “whereas” and “hereunder”, and ending with signatures, possibly witnessed by third parties.  Others believe that a contract of employment needs to be separate from the offer letter that is issued to new recruits once they have verbally agreed to go and work for them.

I have been told in earnest many times by employees: “I don’t have a contract of employment” – by which they mean either that they don’t have a written document that they recognize as a contract, or that they haven’t been asked to sign anything.  A bit of digging usually reveals that at some point in the past they received an offer letter, or statement of terms and conditions, or something similar, although whether it is still up to date is another matter.

In fact the law requires a written statement of employment particulars to be issued to employees within 2 months of their start date.  This written statement needs to include various key details such as the names of the parties, the job title or duties, rate and frequency of pay, hours of work, place of work, holiday entitlement and so forth.  If this is not provided, the employee can bring a claim to an Employment Tribunal (without resigning from the job) and receive compensation of between 2 and 4 weeks’ pay.  This “written statement” is not technically the same as a contract of employment, but it evidences the key terms of the contract, and therefore in practice it serves the purpose.

So does it need to be in writing? Does it need to be signed? And how can it be changed if the need arises?

Myth 1.  A contract of employment has to be in writing

Some employers fail to provide anything in writing at all, whether because they are too busy or lack the expertise to do so, or possibly in the mistaken belief that by not putting things down in writing they are giving themselves more scope for flexibility. In practice, as well as risking action if they fail to provide the written statement mentioned above, they will thereby create more scope for arguments with their employees, and find it harder to enforce their requirements.

The truth is that legally-speaking, a contract doesn’t have to be in writing at all, it can be verbal, and its existence and terms can be inferred by looking at what actually happens.  In the absence of a written document, if an employee carries out certain tasks for you between certain hours and you pay him/her a certain amount for doing so, you will have a legally-binding contract.  If you unilaterally reduce the amount you pay the person, you are committing a breach of contract, regardless of the lack of written documentation.

However, having a written contract is highly desirable because the scope for arguments and misunderstandings is vastly reduced if everything is set out in black and white.

Myth 2. If a contract of employment is not signed, it cannot be relied upon

Signatures are not essential either, but they serve as valuable proof that the parties to the contract have seen and accepted the document which purports to confirm the terms of the agreement between them.  A signature is the most foolproof way of ensuring that the terms can be enforced and any deviation from those terms can be addressed.

However the absence of a signature is not fatal.  Sometimes an employee forgets to sign and return their documentation – that does not necessarily imply that they have not accepted the terms of the offer.  If a new recruit turns up to work for you on the agreed date and accepts their first pay cheque, their acceptance of the terms of their employment with you can be inferred by their actions.

Myth 3. If the employer changes the terms of a contract of employment, and the employee carries on working, that proves they accept the changes

The general principle is that a contract of employment, being a legally-binding agreement between two consenting parties, cannot be unilaterally changed by one party without the agreement of the other.  However, contracts are not cast in tablets of stone, and sometimes changes are necessary: from the rate of pay, to the job title (e.g. upon promotion), working hours (perhaps with the introduction of new shift patterns), notice periods, and even the employer in a TUPE situation.  There has to be a way, therefore, of ensuring that those changes are legally-binding.

In all such cases, the employer will be well-advised to consult with the affected employee(s) to explain the rationale behind the proposed changes, and secure agreement wherever possible.  Only in very extreme circumstances will an employer be justified in imposing new terms and conditions without agreement.

It is particularly desirable if the terms of a contract of employment are changing, to issue a written variation document detailing the changes, and to obtain evidence of their acceptance by means of a signature.  If the changes are very far reaching, or if the original contract of employment was issued many years earlier, it may make sense to issue a whole new up-to-date contract document for the record.

Sometimes, in the absence of a signature, acceptance of new terms of employment can be inferred from the person’s behaviour. A case in the High Court back in 2012 found that an employee who had been promoted, and who had signed up for private medical insurance that had become available as a result of that promotion, had thereby also accepted the post-termination restrictions in the new contract, notwithstanding that he had never signed it.  However, had he not signed up for the medical scheme, the company would not have been able to rely on the restrictions in the new contract.

It is clear from the above judgement that the mere fact that a person continues to work for an employer does not prove conclusively that the terms of any new contract have been accepted.

Furthermore, in order to secure this judgement the employer had to pursue the case all the way to the High Court, which is a time consuming, stressful and expensive process.

It is always better to seal the deal with a fresh document and signatures by both parties.  In fact, I would recommend that whenever you offer somebody a promotion or other advantageous change to their terms and conditions of employment, you should explicitly state that it is conditional upon receipt of the signed documentation within a certain time frame (e.g. before their next pay date), otherwise the offer will lapse.  That will generally focus their minds and ensure a signed document is returned without delay.

In summary, having a signed, written contract of employment is not strictly-speaking essential, but it is absolutely best practice.  Clarity is always better than confusion.  Whenever something fundamental needs to change, a wise employer will discuss it with their employees first, secure agreement, and evidence that agreement with a signature on a written variation document or new contract.  In the absence of a clear, signed, written document, a dispute can still be settled, but it may be harder and more costly to do so, and frankly, life’s complicated enough.

Contracts of employment are too important to be cobbled together from diverse or questionable sources; they should be drawn up by an experienced professional who will ensure that their provisions are appropriate, legal, and reasonable in all the circumstances.  The same goes for your policies and procedures too.  

If you’ve got any questions about contracts of employment or any HR issue for that matter, get in touch today.  Click on the link below to book a consultation call.  

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