CONTRACTS
OF EMPLOYMENT
(PL810 Rev 6)
(continued)
The contract of employment
A contract
of employment is an agreement entered into by an employer and an
employee under which they have certain mutual obligations.
If no
contract of employment exists beforehand, one will come into
existence as soon as an employee starts work and, by doing so,
demonstrates that he or she accepts the job on the terms offered
by the employer. The contract need not be in writing, unless it is
a contract of apprenticeship (employers should note however that a
contract of apprenticeship may be found by the courts to be
implied even if it is not in writing). Its terms can be written,
oral, implied or a mixture of all three.
Implied
terms might include those that are too obvious to be expressly
agreed - for example, a term that the employee must accept
reasonable instructions from the employer - those that are
necessary to make the contract workable and those that are
established by custom and practice in the particular organisation
or industry concerned.
Employed
or self-employed?
Whether
someone is an employee working under a contract of employment or a
self-employed person working under a contract to provide services
depends upon the true nature of the agreement entered into by the
parties. If the employer has a duty to provide work, controls when
and how it is done, supplies the tools or other equipment needed
to do it and pays tax and national insurance contributions on the
worker's behalf, then it is likely that the worker is an employee.
If, on the other hand, the worker can decide whether or not to
accept work and how to carry it out, makes his or her own
arrangements for holidays or sickness absences, pays his or her
own tax and national insurance contributions and is free to do the
same type of work for more than one employer at the same time,
this points towards the person being self-employed.
The fact
that a worker is described (either by himself or herself or by the
employer) as being self-employed does not necessarily mean that
this is actually so. Neither does the fact that the worker does
the job on the employer's premises or from his or her own home
determine the issue. The important question is whether or not the
worker is genuinely in business on his or her own account. If a
dispute arises in which employment status is in doubt, this can be
considered as a preliminary issue by the Employment Tribunal or
the court concerned, taking into account all factors relevant to
the case.
Written
statement of employment particulars
All employees
taken on for one month or more are entitled by law to be given,
within two months of the date the employment starts, a written
statement setting out the main particulars. This statement will
not necessarily cover every aspect of the contract, but will constitute
important evidence of the principal terms and conditions. Further
information about the right to a written statement can be found
in Written Statement
of Employment Particulars (PL700).
Variation
of contract
The contract
of employment is binding on both parties. This means that it is
unlawful for one party to vary the terms and conditions in the
contract without the agreement of the other. The contract itself
may, however, include provisions allowing the employer to make
important changes - for example, requiring the employee to move to
a different place of work or to undertake a different type of
work. In the case of a change covered by a provision of this kind,
there is no variation of the terms and conditions in the contract
and the change will be lawful.
It is always
open to either party to seek to renegotiate the terms and
conditions with the other. A variation may be made by agreement
between the employer and the employee. It may alternatively result
from a variation by collective agreement, where the contract
itself (either expressly or by implication, such as through long
standing custom and practice) provides for this. A collective
agreement is one made between, on the one hand, an employer or an
association representing employers and, on the other, a trade
union representing employees.
The contract
may provide for its terms to be varied by a particular collective
agreement even if the employee is not a member of a trade union
(so that, for example, collectively negotiated pay agreements can
be incorporated into all employees' contracts). An employee's
written statement of employment particulars must specify any
collective agreements that directly affect his or her terms and
conditions (including, where the employer is not a party, the
identities of the parties).
If a variation
of contract affects one or more of the terms and conditions required
by law to be covered in the employee's written statement of employment
particulars, then the employee must be given written notification
of this. The notification must be given as soon as possible, and
at any rate no later than one month after the variation is made.
(Again, further details can be found in Written
Statement of Employment Particulars (PL700).)
It should be
noted that if an employee finds a variation of contract
unsatisfactory but nevertheless continues to work under the new
terms and conditions without making his or her objections known to
the employer, he or she could after a time be deemed to have
implicitly accepted it and it would then become incorporated into
the contract.
Refusal by employee to authorise variation
If the
employer wishes to vary the terms and conditions of employment and
the employee, having been consulted, objects to the variation,
then the employer may decide to terminate the contract by
dismissing the employee. As usual in the event of dismissal, the
appropriate statutory or contractual notice (or pay in lieu of
notice) would have to be given and any other contractual
obligations relating to the termination of employment would have
to be fulfilled. (Further details of notice entitlement can be
found in Rights to
notice and reasons for dismissal (PL707).) The employer would
then be free to offer the job on different terms and conditions
either to the dismissed employee or to another applicant.
If the
dismissed employee considered the employer's actions to have been
unfair, he or she would be entitled to make a complaint of unfair
dismissal to an employment tribunal - provided that he or she had
completed a qualifying period of at least one years' continuous
service. Such complaints must normally be made within three months of the
date the employment ended. The tribunal would consider all the
circumstances of the case in deciding whether or not the dismissal
was in fact unfair. These would include the employer's reasons for
wishing to vary the terms and conditions - overriding business
considerations, for example, might make the dismissal fair - and
the employee's reasons for opposing the variation. (Further
information can be found in Unfairly
Dismissed? (PL712). and Fair
and Unfair Dismissal (PL714).
If an
employer attempts simply to impose a variation of contract
on an employee without the employee's agreement, this will
be a breach of contract. The employee may have various means of
redress available in law. These are described in the following
sections of this document.
Breach of contract claims by employees
If an
employee suffers a measurable financial loss because his or her
employer has breached the contract of employment, or any other
contract connected with employment, then the employee may be
entitled to seek damages by making a breach of contract claim.
The normal
forum for pursuing such a claim is a county court or other civil
court. A claim may however be made to an employment tribunal
instead if it:
- arises or
is outstanding on the termination of the employee's
employment; and
- does not
relate to one of the following special categories:
- personal
injury;
- a
term requiring the employer to provide living
accommodation for the employee or imposing an obligation
in connection with the provision of living accommodation;
- a
term relating to intellectual property (including
copyright, rights in performances, moral rights, design
rights, registered designs, patents and trademarks);
- a
term imposing an obligation of confidence; or
- a
term which is a covenant in restraint of trade.
There are a
number of factors that a dismissed employee making a claim for
breach of employment contract may wish to bear in mind in deciding
which of the two alternatives - employment tribunal or civil court
- to use. For example, the employment tribunals provide a
generally speedier and more informal means of redress than the
civil courts for the resolution of employment disputes, and their
procedures have been designed to make it unnecessary for the
parties to incur the cost of legal representation. On the other
hand, employment tribunal claims must be made within three months
of the date on which the employment ended (or, if that is not
reasonably practicable, within such further period as the tribunal
considers reasonably practicable), whereas civil court claims may
be made up to a much longer time limit of six years from the date
on which the breach of contract occurred. Another consideration
might be that employment tribunal awards for an employer's breach
of contract are subject to an upper limit, currently £25,000,
whereas civil court awards may reflect the full amount of the
damages suffered by the dismissed employee.
Breach of contract claims by employers
If an employer
suffers a measurable financial loss because one of his or her employees
breaches the contract of employment, or any other contract
connected with employment, then the employer is entitled to seek
damages by making a breach of contract claim.
The normal
forum for pursuing such a claim is a county court or other civil
court. A claim may be made in an employment tribunal instead, but
only if it is in response to a breach of contract claim that an
employee has already made to an employment tribunal and that has
not since been settled or withdrawn. In addition, the claim:
- must
arise or be outstanding on the termination of employment of
the employee against whom it is made; and
- must not
relate to one of the special categories listed above in
respect of employees' claims.
If the
dismissed employee withdraws his or her breach of contract claim after
the employer has made a claim, the employer's claim can still be
considered by the employment tribunal.
Employment
Tribunal claims by employers must normally be made within six
weeks of the date on which the employer (or other respondent)
receives from the tribunal a copy of the dismissed employee's
originating application (or, if that is not reasonably
practicable, within such further period as the tribunal considers
reasonably practicable). Civil court claims may be made up to a
much longer time limit of six years from the date on which the
breach of contract occurred. Employment tribunal awards for a
breach of contract by an employee are subject to an upper limit,
currently £25,000, whereas civil court awards may reflect the
full amount of the damages suffered by the employer.
Constructive unfair dismissal
If an
employer breaches an employee's contract of employment in a fundamental
way, which effectively indicates that he or she no longer intends
to be bound by its terms, the employee may be entitled to resign
and to regard himself or herself as having been forced to take
that step in response to the employer's behaviour. This is known
as constructive dismissal.
If the
constructively dismissed employee considers the dismissal to have
been unfair, he or she will be entitled to make an unfair
dismissal complaint to an employment tribunal in the same way as
if the employer had expressly dismissed him or her for objecting
to a variation of the agreed terms and conditions of employment.
Again, the right to make an employment tribunal complaint on these
grounds is subject to a one year qualifying period of continuous
service. The Tribunal would first consider whether or not there
was a constructive dismissal and then, if there was, decide
whether or not the dismissal was in fact unfair in all the
circumstances.
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