Employment Contract

What is an employment contract?

An employment contract is an agreement between an employer and an employee that sets out the terms and conditions upon which the employee shall be hired by the employer.

 

What are the different types of employment contracts?

There are two types of employment contracts: indefinite employment contracts and fixed term employment contracts.

• Indefinite employment contracts: this is a continuing employment contract that can be terminated either by the employer or the employee upon giving the required notice.
• Fixed-term contracts: this is a contract that specifies a fixed (or limited) defined length for the employment contract (e.g. 6 months, 12 months, 24 months).

 

What is the difference between an employment contract and a service contract?

The main difference between a service contract and employment contract is the element of control. Under an employment contract, the employer has more control over the employees and the employees do not have autonomy over how they carry out their assigned tasks contained in the contract. As a consequence of this control, the employee receives regular wages and benefits along with the employer covering other overhead costs (e.g. subscriptions, sick pay, holiday pay, office supplies etc). The employee's salary is also subject to PAYE (Pay As You Earn) tax which will be deducted from the employee's gross salary.

Under a service contract, the service provider has more control and autonomy over how they carry out their assigned tasks and contracted work. They also bear full responsibility for tax payments and other overhead costs (e.g. subscriptions, sick pay, office supplies etc).

Is it mandatory to have an employment contract?

No, it is not mandatory to have a formal written employment contract. The contract of employment can be oral/verbal or implied through the conduct of the parties. However, it is recommended to have a written employment contract that clearly explains the terms and conditions of employment.

It is worth noting that even where there is a written employment contract, it may be overruled by conduct of the parties in certain circumstances. As such, it is important to ensure that the employment relationship follows the written contract where there is one.

What must an employment contract contain?

An employment contract should contain:

• Details of the parties (i.e. the employer and the employee);
• The job description and job title;
• The date when employment will start;
• The primary location from which the employee will carry out their duties;
• Salary details (including the amount, how frequently it will be paid and any possible commission or compensation details);
• The employee's working hours;
• Sick leave and sick pay;
• Holiday entitlements; and
• Disciplinary process.

What is not allowed in an employment contract?

It is not allowed to have an exclusivity clause in an employment contract that prohibits the employee from getting additional employment elsewhere.

It is not allowed to have a clause in the employment contract that requires the employee to commit an illegal act.

It is not allowed to have a clause that discriminates against an employee based on age, gender, disability, race, sexual orientation, religion or belief.

It is not allowed to have a restrictive clause that is not "reasonable". Restrictive clauses include non-compete clauses, non-solicitation clauses, non-disclosure clauses etc. To be legally enforceable, the clause must be for a reasonable time and/or only affect a reasonable geographical location.

Who can enter an employment contract?

The parties to an employment contract are the employer and the employee. The employer will usually be a business that can be a sole trader, a general partnership, or a corporate entity (i.e. a company or a limited liability partnership).

The employee will be a natural person who has to be at least 16 years old to carry on full-time employment. Full-time employment means working for a maximum of 40 hours per week. From 18 years of age, the employee will be subject to adult employment rules.

What can be the duration of an employment contract?

An employment contract can be for an indefinite period of time, in which case it can be terminated by notice of either party, or a fixed contract that is for a defined time after which it will either come to an end or be extended for a set period of time or convert to and indefinite term.

What has to be done once an employment contract is ready?

The employer should give the prepared document to the employee, who will sign and then return to the employer. Both parties should sign two copies of the employment contract and return one to the other party. Where the employer is a corporate entity, it should be signed by an authorised person within the employer's organisation (e.g. HR Director, Managing Director, Designated Member in an LLP).

What is necessary to have witnesses for an employment contract?

No, it is not necessary to have witnesses for an employment contract. The contract will be properly executed once it has been signed by both the employer and the employee.

Applicable law

Key legal provisions include:

• The Employment Rights Act 1996 (as amended);
• The Working Time Regulations 1998;
• The Pensions Act 2008;
• The Income Tax (Earnings and Pensions) Act 2003;
• The Sunday Trading Act 1994;
• The National Minimum Wage Act 1998;
• The UK General Data Protection Regulation; and
• The Data Protection Act 2018.

In addition, employers should be aware of the ACAS guidelines and procedures.

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