What is an Employment Contract?

An Employment Contract is a legally binding agreement that outlines the rights, responsibilities, and obligations of both an employer and an employee. Providing this agreement to a new employee follows the acceptance of a job offer during the hiring process.  

In the UK, an Employment Contract is also known as a:

• Contract of employment
• Employment agreement
• Job contract
• Work contract

Why having an Employment Contract matters

Having an Employment Contract is a vital part of an employer-employee relationship and the hiring process. Though there is no legal requirement in the UK to put an employee agreement in writing, the benefits of a valid, written agreement include:

• Clearly defining both parties’ rights and responsibilities, minimising the risk of potential conflict
• Creating transparency for an employee by documenting key details like compensation, access to policies, and annual leave
• Demonstrating a company’s legal compliance with employment laws
• Safeguarding a business’s interest and intellectual property with restrictive covenants, when they’re applicable (e.g., confidentiality clauses)
• Documenting legal remedies and providing evidence in case there is a workplace dispute or lawsuit

What's the difference between employees and self-employed contractors?

There are distinct differences between employees and self-employed contractors in the UK. Employees work for an employer under an Employment Contract. They typically have set hours, receive benefits, and are subject to taxes and national insurance contributions.

On the other hand, self-employed contractors can be individuals or another business. They work under an Independent Contractor Agreement or Service Agreement. They also have more control over their work schedule, are responsible for their tax contributions, and do not receive benefits from the hiring party. 

The distinction between employees and self-employed contractors is essential for determining legal and tax obligations, so employers must ensure they only create Employment Contracts with employees.

Types of Employment Contracts

Employment Contracts come in a wide variety of different employment terms and types. The kind of contract you use will depend on the position's requirements for hours and contract length. Let’s break them down:

Permanent full-time Employment Contract

• This kind of agreement is for employees who hold permanent, full-time positions 
• The agreement doesn’t have a predetermined end date and ends only when one or both parties terminate the employment agreement
• There are no legal requirements for a specific number of hours to classify a full-time employee (full-time workers typically work 35 hours or more per week)

Permanent part-time Employment Contract

• This type of contract has no predetermined end date, and continues until either the employer or the employee ends the agreement
• Part-time hours can range from minimal to moderate hours, as long as the employee is not working full-time (i.e. not working 35 hours or more per week)

Fixed-term Employment Contract

• Employees on a fixed-term contract have a prearranged end date for their employment 
• Neither party is required to provide notice to end the employment when the contract expires, as it automatically expires on the end date
• Employees on fixed-term contracts may be employed on a full-time or part-time basis

Zero-hour Contract

• Also known as a casual contract, zero-hour contracts are used when work is offered as needed, with no guaranteed minimum hours
• Workers may accept or decline shifts, and are only paid for the hours they work
• Workers are still entitled to National Minimum wage standards and statutory annual leave (based on hours worked), however, they are not guaranteed sick pay, notice/termination period, or other benefits

Please note, LawDepot’s Employment Agreement template is currently not suitable for zero-hours or casual worker arrangements, but is available for permanent full-time, permanent part-time, and fixed-term employment.

Key components of Employment Contracts

The key elements of legally valid Employment Contracts include:

• Both parties’ information and work location
• Start date and, if applicable, an end date
• Work hours
• Job title
• Employee duties and responsibilities
• Any probationary period and its length
• Type, rate, and frequency of remuneration (i.e., compensation)
• Annual leave (i.e., vacation time)
• Sickness and disability details
• Pension information, if applicable
• Termination terms
• Restrictive covenants, if applicable
• Location of disciplinary and grievance procedures

What are restrictive covenants in Employment Contracts?

A restrictive covenant or clause prohibits an employee from engaging in certain behaviours that could put an employer’s success at risk. For example, an employer may include the following clauses in an Employment Contract:

1. Confidentiality clauses to restrict an employee from communicating any of their employer’s confidential information gained during employment.
2. Non-competition clauses, also known as exclusivity clauses, prevent employees from using insider knowledge to compete with their employer. This includes advising or working for a competitor or running a competing business.
3. Non-solicitation clauses prevent employees from disrupting the employer’s relationships with staff or contractors. This includes prohibiting the use of insider knowledge to persuade others to leave and join a competing business.

It’s essential to note that zero-hour contract employees cannot be restricted from seeking additional work or accepting employment from another employer.

Employment laws in the UK

In the UK, several laws govern employment and Employment Contracts. These pieces of legislation range from anti-discrimination laws to setting minimum wages for employees. Some of the main laws that apply to England, Wales, Scotland, and Northern Ireland include:

• The Employment Rights Act 1996
• The Equality Act 2010
• The National Minimum Wage Act 1998
• The Working Time Regulations 1998
• The Health and Safety at Work Act 1974

LawDepot’s Employment Contract template is available for each UK country, allowing you to create a valid agreement tailored to your specific location. 

Each country may have additional employment laws specific to its region. It's recommended to check your local laws for further information on the rights and responsibilities of employers and employees.

How to write an Employment Contract

Use LawDepot’s easy-to-use Employment Contract template to have a downloadable PDF ready in minutes. Simply complete the following steps once you determine the type of employment you’re offering a new employee:

1. Add the location where the employment is taking place
2. Input both employer and employee details (e.g., name and address)
3. Include the job details (e.g., start date, where the employee will primarily work, and work hours)
4. Outline remuneration (e.g., type of compensation, pay periods, and types of leaves)
5. Document termination terms (e.g., probationary period, notice for dismissal, employee resignation notice)
6. Indicate where disciplinary and grievance procedures can be found
7. Add any final details (e.g., any collective agreements, restrictive covenants, signing date)

LawDepot’s Employment Contract is available to customise when hiring employees in England, Wales, Scotland, and Northern Ireland. Our questionnaire will prompt you to include only details relevant to your jurisdiction and employment type to make a valid agreement.

What happens if you breach an Employment Contract?

Either party could be in breach of an Employment Contract if they fail to follow the terms of the agreement.

Employee breach of contract

When an employee breaches a work agreement, the employer’s response will depend on the severity of the infraction. They may issue a warning for minor infractions (e.g., being frequently late, failing to complete job responsibilities, or missing work without proper notice).

If an employee continues to breach their contract after receiving warnings, an employer may need to terminate their employment with an Employment Termination Letter. Additionally, some infractions may be grounds for immediate termination (e.g., breaching confidentiality policies, not following health and safety policies, or threatening co-workers).

Employer breach of contract

If an employer breaches their contract, an employee may seek assistance from the Advisory, Conciliation, and Arbitration Service (ACAS) or pursue a claim through the Employment Tribunal.

An employer could be in breach of contract for failing to fulfil their duties. Examples include failing to pay wages, failing to follow procedures for grievances, and wrongful dismissals.