Employment Terms and Conditions

Legal Requirements for Employment Contracts

Central to all relationships between employers and employees are the terms and conditions of employment entered into between the two parties.

The contract of employment is usually the starting point for parties to understand the terms and conditions of employment. However, it is important to bear in mind that much of the employment relationship is governed by the operation of the law and is simply not up for negotiation.

In other words even where a contract explicitly states that the parties are bound by a particular term neither party will be bound if the term breaks the law.

For example, there are legal requirements regarding when a contract of employment needs to be offered and even governing the content of such contracts. Interestingly, however, there is no requirement on an employer to provide a full employment contract, but rather the need to provide what is referred to as a Section 1 Statement.

Employer/Employee Basic Legal Obligations

Within two months of commencing employment, an employee is legally obliged to obtain a section one statement, which lays out the basic terms and conditions of employment. An employer is obliged to provide these statements, once employment is set to continue for more than one month; however, these statements absolutely must be provided within two months.

Failure to do so will allow an employee to bring a tribunal claim and will allow the tribunal to create a Section 1 Statement, based on the reality of how the relationship has developed, during the period of employment.

Although a contract of employment is a much more comprehensive and appropriate way of managing such an important employment relationship, the Section 1 Statement is the minimum basic requirement which needs to be met.

Section 1 Statement Essential Content

The content of the Section 1 Statement must include:

• name of the employer and employee;
• date of commencement of employment, or the date at which continuous employment began;
• how pay is calculated e.g. hourly rate and when payment is made;
• hours of work;
• entitlement to holiday and holiday pay;
• A brief description of the work and a job title;
• location of the work place;
• statement of whether the company has entered into a contracting out certificate, in accordance with the Pension Schemes Act 1993;
• basic information on disciplinary and grievance procedures.

Clearly, there is so much more to the employment relationship, and with an increasing trend towards litigation within the employment tribunal arena, having a more robust contractual arrangement is highly beneficial to all concerned. Despite this, the Section 1 Statement of terms and conditions, noted above, constitutes the absolute basics that cannot be avoided and should, indeed, be the backbone of any employment situation.

Contract of Employment

Although the Section 1 Statement is the starting point for a contract of employment, a more detailed contract of service is crucial for the efficient running of the modern organisation.

Difference between Contract of Service and Contract for Services

An important distinction is drawn between the “contract of service”, which is a personal employment relationship between employer and employee and a “contract for services” which is essentially a self-employed relationship.”
It is important to identify the true relationship between the parties, at the earliest stage, to determine whether an individual is an employee or is self-employed.

Contracts are fundamentally up to the negotiation of the two parties in order to ensure that they are in agreement and that the contract accurately reflects the nature of the relationship. Despite this, the employment contract is subject to considerable control which reduces, to a certain extent, the degree of flexibility that the parties have, when it comes to negotiating terms.

The terms of a contracts are a matter that to be agreed between the parties. However, where a term does not comply with the law that term will be void, even if both parties have agreed to it.

It is therefore important to ensure that a lawyer looks at any contract of employment to ensure that it complies with the law and to make clear which parts can be challenged or are unenforceable.

Changes and Flexibility in the Employment Contract

Employers will typically look towards maintaining a degree of day-to-day flexibility, for example by including terms which state that the employee should undertake any reasonable activities requested of them.

Changes can be agreed by both parties at any point. If they are not agreed an employer can give notice under the contract of employment. However, this may give rise to claims such as unfair dismissal, discrimination and  number of other claims.

Flexibility is clearly commercially beneficial for an employer. However, care also needs to be taken to ensure that the contract is not so vague that it has the opposite effect and creates confusion.
A contract that lacks clarity could easily result in a situation where a tribunal implies various terms and conditions into the employment contract. This will lead to a legal argument between the parties as to what the terms and conditions of employment actually are. Importantly, this can result in a loss of control between the parties.

Minimum Legal Requirements

Certain areas of employment law are also dealt with, in keeping with legal minimum requirements. For example, the notice period cannot be below the statutory minimum. This does have the effect of reducing the flexibility given to employees when establishing a contract of employment and all contracts must offer at least the minimum legal protection. If they fail to do so, it will be the minimum legal protection which takes precedence over anything written in the contract.

Non Contractual Provisions

Difficulties can also emerge where the relationship between the employer and employee involves policies and work practices, but does not include terms which are sufficiently robust to make it into the contract of employment. These work practices and policies are often contained within the handbook and can be changed by the employer, at any point, provided they are acting reasonably in doing so, and inform those who may be affected. For this reason, the staff handbook is often viewed as a vitally important document, as it deals with the day-to-day operation of the company and the expectations that the employer has of their employees, without necessarily being part of the legal contract of employment.

Pay and Benefits

The most important element of the terms and conditions are the pay and benefits clauses. This is no real surprise, as the employees undertake work in order to receive pay and benefits and therefore these issues are sufficiently important to warrant statutory intervention, to ensure that the minimum level is achieved.
National Minimum Wage

Almost all workers and employees are entitled to a basic hourly wage, as per the National Minimum Wage Act 1998. Although there are some exceptions to this requirement, for example, apprentices under the age of 19 years old in their first year or employment, on the whole, the national minimum wage which is reviewed ever October and needs to be maintained by all employers.

Calculating Wages

Particular care should be taken where set salaries are paid and unpaid overtime is regularly undertaken.  When calculating the wage being received by an employee, their working hours will be considered and not the contractual hours, meaning that unpaid overtime could result in a breach of National Minimum Wage.

Equal Pay

As contained in the Equal Pay Act 1970 and, more recently, amended in the Equality Act 2010, there is a fundamental right to ensure that employees are entitled to receive equal pay to other employees. Although there may be historic or justified reasons for there to be distinctions in the pay scales, employers are required to ensure that any distinctions are fully justified and are for a legitimate reason, rather than simply being gender-based.

Although the focus is generally an equal pay these issues could extend to other areas of equality. Employers need to review their position, regularly, to ensure that they are maintaining equality, not only in terms of pay, but also regarding the wider terms and conditions of employment, as they are applied across their organisation.

Bonuses and Entitlement

For many employees, the possibility of a bonus actually means the difference between financial viability and not. Bonus payments are often one of the more contested issues, particularly given the fact that a bonus can be contractual, non contractual or contractual, but with discretion, making it difficult to determine entitlement.

As well as considering whether it is a contractual entitlement, it may be possible that the giving of a bonus has become implied, based on custom. Managing the bonus process is a critical role for the management team. Therefore, consistent application is critical, if neither party is to fall foul of the contractual provisions relating to bonuses.

 Casual and Part-time Workers

Increasingly, there is a need for employers to retain a high level of flexibility within their workplace, and many employees are not recruited, on a full-time basis. Instead, casual workers are employed, or employees are recruited on a zero hour contract. Simply placing an individual on a casual contract does not mean that they do not have to comply with basic legal provisions.

Status of a Casual Worker

A casual worker is typically considered to be an individual who works in a way that their workload is not constant for example they do different hours every week. Certain industries are much more likely to use casual workers, for example, the hospitality industry, where there may be dramatic changes during busy periods.

A casual worker will typically take one of three key formats. Firstly there is the zero hour contract, where an employer is not obliged to provide even a minimum amount of work; however, the employee is also not obliged to accept work, when offered.

Bank staff are another form of casual worker, where the employer has a pool of workers whom they can draw upon, when required, something which is commonly seen within the healthcare industry.

Finally, there is an umbrella contract where an individual may be engaged on a series of individual contracts, but under one overall umbrella contract, which will continue, even when the individual employee is not working at that particular point in time. On the face of it, these three types of casual workers are very different, but the basic considerations associated with how the employer should deal with these employees or workers are similar.

Casual Workers: Issues and Disputes

Although the precise nature of the contract needs to be carefully negotiated, to ensure that the basic statutory requirements are met in general terms there are some areas that are more contentious than others. The two main key areas of dispute which typically arise, where the casual worker is concerned, involve how to calculate continuity of service, particularly when looking at issues such as potential redundancy, and how to calculate their entitlements to specific benefits, for example, holidays.

Administration of Casual Workers

It should also be noted that requirements such as the working time regulations and national minimum wage also apply to casual workers. Having a casual worker does not simply mean that the employer can ignore all legal requirements. If anything, it can be harder to comply with these legal requirements, as the situation can change, dramatically, from day to day.

Establishing a robust position to deal with the administration of casual workers is, therefore, central to ensuring that statutory requirements are met and also to ensuring that contractual provisions that have been laid down, such as how work is offered, are complied with.

Casual workers provide a degree of flexibility within any workplace. However, ignoring their statutory rights can lead an employer into hot water, very quickly!