Myth busting: Do employees need employment contracts?

11th September 2019

One of the most frequently asked employment law questions, according to Google is: Do employees need employment contracts? One of the most common reasons employers give for not issuing a contract is that they are afraid of being held to contractual terms and want more flexibility… but is this really true?

In this article we take a look at some of the most commonly encountered employment contract myths, examine the true legal position and offer best practice advice.

Do I have to provide my employees with a contract of employment?
The technical answer is no. However, whilst it is not strictly necessary to issue a formal contract of employment to all employees, section 1 of the employment law bible (also known as the Employment Rights Act 1996) specifies that: “Where an employee begins employment with an employer, the employer shall give to the employee a written statement of particulars of employment.” This is commonly known as a section 1 statement. So this means that although they don’t need a contract as such, a document stating the basics of their employment is required.

What is a “written statement of particulars of employment”?
This is essentially a very simple employment contract which details the basic terms of employment as specified in section 1. Examples include: Name of employer, date that employment and continuous service began, job title, remuneration terms, hours of work, absence and leave arrangements and notice requirements.

When must section 1 terms of employment be provided?
Currently a section 1 statement must be provided to all employees whose employment is due to last at least one month, within the first two months of employment. However, this changes from 6 April 2020 when it will be required to be provided from day one.

What are the benefits of providing an employment contract over a section 1 statement?
Where an employment contract is provided, there is no need to provide a separate section 1 statement as long as all of the section 1 matters are dealt with in the contractual documentation.
Frequently employers prefer to provide an employment contract instead of a section 1 statement so that they can include additional rights such as the right to vary duties, withhold pay where monies are owed to the Company, place employees on garden leave and make specific provision for important matters such as the handling of confidential information and company property.

Is it harder to change my employees terms if I give them an employment contract?
No. Employees will still have an implied contract based on their day-to-day duties and terms. An implied contract is just as valid as a written document and the same law applies to the variation of it, although the terms of the implied contract are less certain. If anything, this could mean that you are more likely to end up in a dispute. Arguably it could in fact be harder to change your employees’ terms without the express right to make variations, which could be written into a contract.

What are the consequences of not issuing a section 1 statement or employment contract?
If you do not issue your employees with a section 1 statement, or the statement issued is inadequate, they are entitled to apply to an employment tribunal for their terms of employment to be declared. This will almost certainly involve unnecessary admin and take up valuable management time.
If an employee without a contract succeeds in an employment tribunal claim against your company, that employee will be entitled to an additional award of between two to four weeks’ pay (subject to the statutory cap on a weeks’ pay applicable at the time).
You may also run into complications in relation to other practical matters such as attempting to vary your employees’ duties or make deductions from wages.

What happens if the employee does not sign their section 1 statement or contract?
In most instances a signature is preferable although not essential. A signed document is evidence that the employee has received it and the terms are agreed. If the document is not signed and returned, but the employee continues working without objection, in most instances they will be deemed to have agreed to the terms by reason of their conduct. However, in some circumstances, such as where the contract contains post termination restrictions (that seek to restrict the employee’s ability to compete with your business after they have left) it is essential that the signed document is returned and safely kept.

Do executive directors need section 1 statements or employment contracts?
Yes. The law applies to all employees, regardless of status. Director’s contracts are commonly referred to as service agreements and include specific clauses in relation to matters such as directors’ duties, benefits, post-termination restrictions, intellectual property, and obligations on termination and ceasing to be a director. Services agreements for directors are highly recommended as disputes are much more likely to arise where these are not in place and, if you are looking to sell or secure investment, will be expected by any potential purchaser.

What other employment documents should all employers have in place as a minimum?
All employers should have grievance and disciplinary procedures in place. If you employ more than five employees, you are also required under the Health and Safety at Work Act 1974 to have a health and safety policy. If your employees are regularly working more than 48 hours per week, they should sign a Working Time Regulation Opt-Out. In order to comply with GDPR, employers will usually require a comprehensive data protection policy and accompanying privacy notices dealing with the controlling and processing of the personal data of employees.

New Fixed Fee Employment Contract Packages from £300
Murrell Associates are currently offering fixed-fee employment law compliance packages starting at £300 plus VAT for an “Essentials Package” containing standard template employment contract, disciplinary and grievance procedures, working-time opt out and a health and safety policy, all tailored to the needs of your business.

Find out more
If you would like more information on employment contracts or employment law generally, please contact Melanie Rowe on 01872 227066 or by email at melanie.rowe@murrellassociates.co.uk