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Employment Contract


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Last updated December 21, 2023

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What is an Employment Contract?

An Employment Contact outlines an employer's and employee's rights, responsibilities, and obligations. Once the employer offers the employee the job and both parties sign the Employment Contract, they become legally bound to its terms.

In the United Kingdom, an Employment Contract is also commonly known as a Contract of Employment. Our template is useful in England, Wales, Scotland, and Northern Ireland.

Why are Employment Contracts essential?

Employment Contracts are a vital component of the employer-employee relationship, even though there is no legal requirement to put them in writing in the United Kingdom. Despite not being required, using a written Employment Contract is the best way to create a record of the agreed-upon employment terms and protect the interests of both parties.

Simply put, verbal agreements do not suffice. Relying on a purely verbal Employment Contract should be avoided because it’s difficult—if not impossible—to prove its exact terms. If a dispute arises and an employer and employee don’t have a contract, they could recall the details of their arrangement differently and have trouble resolving the conflict.

Instead, written Employment Contracts provide a record of the job terms so that either party can use it as legal protection in case of a dispute or lawsuit.

Employment Contract law

In the United Kingdom, several laws govern employment and Employment Contracts. Some of the main laws that apply to England, Scotland, Wales, and Northern Ireland include:

  1. The Employment Rights Act 1996: This act provides the basic rights of employees, including the right to a written statement of terms and conditions of employment, and the right to statutory holiday pay.
  2. The Equality Act 2010: This act prohibits discrimination on the basis of certain protected characteristics, such as age, gender, race, and disability, in all areas of employment.
  3. The National Minimum Wage Act 1998: This act sets out the right to a minimum wage and the minimum wage rates that employers must pay their workers.
  4. The Working Time Regulations 1998: These regulations set out the maximum number of hours that employees can work each week, the right to rest breaks, and the right to paid annual leave.
  5. The Health and Safety at Work Act 1974: This act sets out the responsibilities of employers to ensure the health, safety, and welfare of their employees in the workplace.

Types of Employment Contracts

Employment Contracts vary widely, depending on whether employers hire employees permanently or temporarily and on a full-time, part-time, or casual basis. Below, we explain the differences between the main types of Employment Contracts.

Permanent full-time Employment Contract

Many employees hold permanent, full-time positions. For an Employment Contract to be considered permanent, it can’t have a predetermined end date. In other words, permanent contracts are indefinite until one or both parties terminate the arrangement.

Defining full-time is less straightforward because there isn’t a legal requirement of hours that classifies full-time employees. That being said, full-time employees usually work 35 hours or more a week.

Permanent part-time Employment Contract

Working part-time is also very common. Employees on a permanent part-time contract do not work full-time hours and have no predetermined end date.

Part-time hours can range from minimal to moderate hours as long as the employee is not working full-time.

Fixed-term Employment Contract

Employees on a fixed-term contract have a prearranged end date for their employment. This means the contract automatically expires on a specific date, and no notice is required from either party to end the employment at that time.

Employees on fixed-term Employment Contracts may work on a full-time or part-time basis. Often, employees on fixed-term contracts are hired temporarily.

What is included in an Employment Contract?

When creating an Employment Contract, certain information must be included. By using our template, you can include the following information:

  • Employer and employee information
  • Start date
  • End date, if applicable
  • Work location
  • Work hours
  • Job title
  • Employee duties and responsibilities
  • Probationary period length, if applicable
  • Type and rate of remuneration (i.e., compensation)
  • Payment frequency
  • Annual leave (i.e., vacation time)
  • Sickness and disability details
  • Pension information, if applicable
  • Restrictive clauses
  • Termination terms
  • Location of disciplinary and grievance procedure

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 clause

A confidentiality clause restricts an employee from communicating any of their employer's confidential information gained during employment. They are important when an employee may come into contact with sensitive or proprietary information that is the exclusive property of the employer. It’s important that this clause states the confidentiality period and defines what constitutes confidential information.

2. Non-solicitation clause

A non-solicitation clause restricts an employee from recruiting any of the employer's other staff or contractors after the employee leaves. It aims to prevent an employee from interfering in the employer’s relationship with other employees.

3. Non-competition clause

Also known as an exclusivity clause, a non-competition clause aims to prevent an employee from competing for business with their employer. This term may be in effect while the employee works for the company or for a certain length of time after they leave.

Typically, a non-competition clause prohibits the individual from:

  • Giving advice, money, or skilled labour to a competing business or individual
  • Directly competing for business as an owner, sole proprietor, partner, or otherwise

Employees versus self-employed contractors

There are distinct differences between employees and self-employed contractors in the United Kingdom.

Employees work for an employer and are under an Employment Contract. They typically have set hours, receive benefits, such as sick pay and holiday pay, and are subject to taxes and national insurance contributions.

On the other hand, self-employed contractors are individuals who work independently. They sign an Independent Contractor Agreement or Service Agreement instead of an Employment Contract. Typically, self-employed contractors have more control over their work schedule and are responsible for their tax contributions. Generally, they are not entitled to receive benefits.

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

Breaching an Employment Contract

When an employee breaches their Employment Contract, their employer's response will depend on the severity of the infraction. An employer may issue an employee a warning for minor infractions, such as:

  • Being frequently late
  • Failing to complete certain job duties
  • Missing work without proper notice

If an employee continues to breach their Employment Contract after receiving a warning, their employer may need to let them go with an Employment Termination Letter. In addition, some infractions may be grounds for immediate termination, such as:

  • Breaching a confidentiality policy
  • Not following health and safety policies
  • Breaching a drugs and alcohol policy
  • Misrepresenting qualifications
  • Threatening co-workers
  • Theft

Changing an Employment Contract

An employer can only update or change an Employment Contract if:

  • The employee agrees to the change
  • The contract includes a variation clause stating that the employer can make certain changes
  • The law changes (e.g., the minimum wage rate changes)

If one or more of the above requirements is met, the employer can use a Contract Addendum, also known as an Amending Agreement, to change the Employment Contract. A Contract Addendum allows you to make one or more changes without invalidating the entire contract.

Suppose you need to change an employee's current job description and duties significantly. In that case, using a Contract Addendum will prevent you from having to create an entirely new Employment Contract. A Contract Addendum must be signed by both parties and attached to the Employment Contract.

For changes specific to compensation, employers can use a Pay Rise Agreement.

Terminating an Employment Contract

Generally, it’s either an employee or employer who ends a working relationship. Employees who want to quit and end the contract provide their employer with a Resignation Letter. On the other hand, employers terminate Employment Contracts by providing the employee with an Employment Termination Letter.

However, sometimes an employer and employee mutually agree to end their working relationship. In that case, they may use a Termination Agreement to cancel the Employment Contract. It’s a useful tool because it ensures the release of all obligations outlined in the Employment Contract and creates a record of an employee's last official day.

Unlike an Employment Termination Letter, a Termination Agreement requires both parties’ signatures.

Related documents:

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