Is it a legal requirement to have a contract of employment?

It is fairly standard in the majority of businesses that when a new employee is hired, they will receive an employment contract. However, does this mean that employment contracts are a legal requirement? Not necessarily but that doesn’t mean you shouldn’t have one. This is what we will be exploring in this article. Don’t forget to look at our employment law services for employers if your business needs experienced and professional support.

Firstly, what is an employment contract?

An employment contract is a legally binding agreement between an employer and an employee. This can be done verbally simply through conversations between each other. Or in a written format through a job offer letter, email exchanges etc. Sometimes parts of the contract can even be agreed through conduct. This means there have been actions that have shown an agreement, despite it not being directly spoken about or written.

No, there is no legal requirement for an employer to provide a written employment contract to employees. However, section 1 of the Employment Rights Act 1996 (ERA 1996) does require employees (and workers) to be given a written statement of certain specified employment particulars (often known as a “section 1 statement”).

For those who started employment before 6 April 2020, the information in the section 1 statement could be given in instalments and at different times, provided it was all given within two months of starting employment (section 1(2), ERA 1996). Certain information had to be provided to the employee in a single document (the principal statement). Other information could be given either in the principal statement or a supplementary statement or statements, which together made up the section 1 statement. Some information did not have to be given in the section 1 statement itself but could be set out in another reasonably accessible document which was referred to in the section 1 statement. For those starting employment on or after 6 April 2020, these requirements have changed.

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.

Is it illegal for employees to work without an employment contract?

What does a statement of terms include?

We mentioned two examples above, but it’s essential for employers to know what they are required to include when providing a statement of terms to a new employee.

The names of both the employer and employee
Start date of employment
The date the employee’s continuous employment starts
Intervals for payment
Method, rate, or scale for calculating remunerations
Holiday entitlement and relevant working information for public holidays and holiday pay
Terms and conditions for working hours e.g., normal working hours
Provisions for sick pay and incapacity for work
Pension and pension scheme details
Duration of notice to be given to the employee or provided by them for employment termination
Job title or a description of the role
Disciplinary rules and procedures

Do you need an employment contract?

If you have already provided a statement of particulars to your new employee, you don’t have to supply an employment contract. However, it is advisable that you do so as it ensures the specific requirements of your business and industry are met, which will protect your business in the event that the employee acts in a way that breaches the contract of employment.

By only providing a standard statement you are leaving your business vulnerable to further issues in the future and from a legal standpoint you wouldn’t be in a strong position. In the event of a dispute for instance, a tribunal will treat the statement of terms or employment contract as strong evidence of what was agreed between both parties.

So, it is in an employer’s best interests to provide a contract of employment to support their interpretation of the agreement. Use our employment law helpline for employers if you need assistance with establishing a suitable employment contract for your employees.

Benefits of an employment contract

Some employers may feel that not committing to a set agreement in writing will give them more flexibility, but this is not the case. Not having an employment contract, a written one in particular, often leads to uncertainty and confusion between employer and employee, which can result in a strained relationship and other problems going forward. With this in mind, the main benefits of an employment contract are:

Employers can have better control over key factors in their business such as expected standards of performance.
It offers a greater level of protection over the business interests. A good example of this is the employer implementing a confidentiality term that prevents an employee from sharing sensitive information, using it for personal gain. Or they might want a restrictive covenant provision in place that states an employee can’t compete against the business for a set period of time after terminating their employment.

There can be more flexibility for employers to alter the terms of the contract. Employers don’t have an automatic right to vary the terms of a contract and how much they can change working arrangements will be based on what the contract states. Certain flexibility for changing terms like bonus entitlements and place of work, could be built into the contract.
More detailed obligations can be imposed with an employment contract compared to a statement of terms. For example, a contract could stipulate that an employee needs to give enough notice for the business to source their replacement.

If you’re providing a written contract to employees, they should sign and date it as well as make a copy for their own records. Any changes to the contract you decide to make should also be documented and signed by your employees. Having clear documentation of your employment contracts will help make your HR and employment law processes much more organised and efficient.

Conclusion

Despite it not being a legal requirement, a contract of employment is still an important document for any business, big or small to have. It establishes clear terms and boundaries for employees, so they have a good understanding of what is expected from them. This will ultimately ensure positive working relationships between employers and employees and smoother employment processes for businesses overall. If you’re looking for an employment law expert for employers UK, make sure to contact us at Employment Law Services (ELS) LTD today.