EM Law are experts in drafting, negotiating and advising clients on employment contracts. Our employment law team have partner-level experience from leading City and national firms as well as in-house experience from global businesses. We act for employers as well as employees.
There are no particular formalities that have to be observed for entering into an employment contract. A contract may be express or implied, oral or in writing. There is no legal requirement for an employee to have a written contract of employment. However, section 1 of the Employment Rights Act 1996 (ERA 1996) requires an employee to be given a statement of certain specified terms within two months of starting employment.
A section 1 statement is not necessarily a contract of employment in itself. It may simply be a statement of what has already been agreed orally or in writing. If there is no separate written contract, the section 1 statement will be persuasive evidence as to the terms of the contract of employment between the parties. If, however, there is a separate written contract, the section 1 statement cannot override a term recorded in that contract. The contract itself always takes precedence.
Employment contracts need not be in writing, and may be express or implied; so there is no strict requirement for a contract to be signed. However, it is clearly in the employer’s interests to obtain a signed agreement, otherwise it may be difficult to establish what the terms are. It may be inferred that an employee has accepted the terms offered by the employer by conduct (in effect by turning up for work), even if the contract has not been returned and signed by the employee.
There are many different types of employee which, in turn, call for different types of contracts.
However, employers should not assume that such distinctions are watertight and should decide which clauses may have to be tailored, omitted or added, according to the particular situation. Care is needed, for example, when it comes to the distinction between “senior” and “junior” employees. In some workplaces, ideas about hierarchy have become outdated and technology-based and creative roles may be highly valued, despite the fact that they are not managerial. Restrictive covenants may be necessary in respect of someone who occupies a position of influence with clients, even if they are not managerial or highly paid.
Express terms are those that have been agreed explicitly between the parties, either orally or in writing.
Implied terms are terms that have not been specifically set out or stated by the parties at the time of entering into the contract.
At common law, terms may be implied into a contract because they are too obvious to mention or because the parties assumed that they would be incorporated at the time the contract was entered into. For example, the fact that an employee has a duty to serve their employer faithfully and the employer has a parallel duty not to destroy the relationship of trust and confidence between employer and employee.
Terms may also be implied into a contract because they can be logically deduced from the conduct of the parties or in order to make the contract workable (the so-called “business efficacy” test). The fact that certain qualifications are required to undertake a particular role (for example, a HGV driver will be required to hold a valid HGV licence) is probably the best example of terms implied into a contract of employment on this basis.
Finally, terms can be implied into employment contracts because they are part of the custom and practice of an employer’s business or industry. In order for such custom and practice to become an implied term, it must satisfy the established common law test of being reasonable, notorious and certain.
It is not uncommon for clauses within employment contracts to be expressed in terms of a contractual discretion, for example, in relation to the award of a bonus or the grant of share options. Case law has made clear that an employer must exercise discretion:
The employer may also have decision-making powers under the contract, for example as to whether the employee is eligible for certain treatment on the occurrence or non-occurrence of a specific event.
Terms can be incorporated into employment contracts by virtue of statutory provisions. Common examples of incorporated statutory provisions are the equality clauses that are treated as incorporated into every contract of employment under the Equality Act 2010.
It is necessary to distinguish between contractual terms and non-contractual provisions. An employer has much more scope to modify non-contractual provisions or arrangements at any time without securing the agreement of the employee.
Staff handbooks and manuals may be a source of the terms of contracts of employments, as may electronic policies and procedures posted on an employer’s intranet site. For the purpose of changing terms of employment, it is important to determine whether the provisions contained within these documents have contractual effect.
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