I know it’s a pain, but SMEs really should issue contracts to all employees. Here’s why.

We are currently helping a small family owned business make some employees redundant.

The owners are lovely people. I have no doubt they are great employers and brilliant to work for. Not having contracts for their employees hasn’t been an issue for them for literally decades and if it were not for coronavirus I suspect that would have been the case for decades to come.

However, due to lockdown they needed to reduce staff costs or the business may not have survived.

Being caring employers they wanted to do things right so they called ACAS for advice but were frustrated to find that, because they had not issued employment contracts, ACAS would not agree to the redundancy process starting until they had done so.

Putting such documents together was way out of their comfort zone, they did not know where to start and ACAS’s fees for this seemed high, so they did nothing about it for several weeks, adding costs they could not afford.

This apprehension regarding contracts is not uncommon, we often find that SMEs put off issuing employment contracts either due to a lack of knowledge, a sense that it is quite daunting, or intending to do it but it never quite gets high enough on their to-do lists.

There are no advantages, and several downsides, to not issuing contracts including employees being able to make a Tribunal claim simply because they have not received one. They can do this because failure to issue a contract is a breach of a statutory right, which means they do not need 2 years’ service to claim and they could, in theory, sue the company on day 2 of employment having not received a contract by the close of day one!

The good news, however, is that issuing basic contracts is cheap, quick and relatively straightforward. Employers can choose to either issue a basic Statement of Written Particulars or a Contract of Employment. Most SMEs we have worked with have chosen the former.

Statement of Written Particulars

A basic Statement of Written Particulars can be put together quite easily through an internet search. Alternatively, 186hr will put one together that is specific to your company.

186hr can create a Statement of Written Particulars specific to your company’s needs for £300 plus vat. Contact us for details.

If you decide to do this yourself then, although some sections need a little more detail, the Statement must include:

• Name of employee and name / address of employer
• Start date
• Pay details
• Job title
• Working hours
• Holiday entitlement / pay
• Sick pay and policy
• Notice provisions
• Pension details
• Disciplinary rules
• Who to raise a grievance to

We would be happy to discuss any of the above sections in more detail, or extra clauses for employees who are not on standard terms e.g. they are in a temporary role or are employed for a fixed term. Statements or contracts need to be issued to all such employees.

Once the Statement has been put together, 2 copies should be issued to each employee, they should be asked to sign and return one and keep the other for their records.

With regards to timescales, the legal requirement for when the Statement must be issued changed earlier this year. Previously employers had a month from the employee start date but now it must be issued on or before day 1 of employment.

If you have not issued Statements or Contracts to your employees we would advise you to do this as soon as possible. From what we have seen, it is pretty certain that a Tribunal will make an award against a company if they have not issued Statements or Contracts, but they seem to be lenient if they have been issued late, when evidence suggests the judge will criticise the employer but rarely make an award against them.

Employers are required to issue new Statements of Written Particulars when employees’ terms change but thankfully this only applies to some of the terms such as sick pay, pension details or notice periods. You do not need to issue a new Statement each time pay changes.

Contracts of Employment

Either when a company has grown and needs to introduce more structure e.g. at the same time as rolling out more formal processes, policies etc or if it just feels like the right time, employers may wish to issue Contracts of Employment rather than basic Statements of Written Particulars.

As you would expect, an employment contract is a legally binding agreement between an employer and an employee. It is formed when the employee accepts an offer of employment from the employer. The contract may be oral, in writing, or a combination of the two, though some aspects of the contract must be written down. So the above Statement of Written Particulars is actually a form of employment contract.

186hr can create a Contract of Employment specific to your company’s needs for £500 plus vat. Contact us for details.

Wording a contract of employment is more time consuming than a Statement of Employment Particulars and so the fees are a little higher and you will need specialist support. The wording will be specific to your company and you can choose exactly what clauses you want in the contract from a menu of options. The options you choose may differ depending on the employee’s role or seniority.

We employ a specialist employment law solicitor to update our contract wording each year to make sure it is always up to date.

Employers often include Restrictive Covenants in contracts, with the most common clauses being to prevent the employee setting up a business in competition, or working for a competitor for a specific period after they leave, in addition to clauses preventing the employee from poaching customers, suppliers and staff, again for a reasonable period after their employment ends.

The question of whether a term of employment is contractual or discretionary sometimes results in disputes. This is most often the case with bonus schemes, which we recommend are clearly described as non-contractual and at the company’s discretion. However, even if it has been worded as such, if a bonus scheme has been paid and remained pretty much unchanged for several years it is likely to be deemed to be contractual due to custom and practice and thus, the terms will be binding. It is difficult to be precise about the moment in time when a non-contractual discretionary term changes into a contractual one, unfortunately that is one for lawyers to argue about at Tribunal.

In addition to bonuses, we also recommend that companies make it clear that policies and procedures e.g. as part of an Employee Handbook, are stated to be non-contractual.

If you are interested In putting together an Employee Handbook 186hr will do this for you from £500 plus vat. Contact us for details.

Returning to custom and practice, employers should be careful regarding redundancy terms as there have been many Tribunal cases over whether terms given in the past became contractual due to custom and practice even if the employer has since changed their redundancy policy. If this is a concern please contact us to discuss further. 

Most terms contained in an employment contract are express terms i.e. they are written into the contract, but in addition some terms are implied and don’t need to be specifically stated e.g. it is implied that the employer will provide work, will pay the employee, will investigate grievances etc and likewise it is implied that the employee will turn up for work, act in good faith and obey the law.

In employment law cases the most significant implied term is the requirement for there to be mutual trust and confidence between employer and employee. If the employer undermines or destroys the mutual trust and confidence, then the employee may regard this as a fundamental breach of contract and claim accordingly. Likewise, a breach of mutual trust and confidence by an employee can be a fair reason to dismiss them.

Examples of ways in which an employer may breach the implied term of mutual trust and confidence are a failure to prevent bullying, harassment or discrimination; failure to investigate a grievance properly; or humiliation such as criticising an employee in front of work colleagues.

Where an employer wishes to change the terms of a contract they are required to consult with the employees affected. This is one of the main reasons that we recommend terms such as bonus scheme rules and also policies and procedures are clearly labelled non-contractual, as it would be impractical to have to consult each time a change is made for fear of being in breach of contract.

Certain contractual terms can be a minefield so it is important to take professional advice e.g. regarding paying notice in lieu. If you intend to do this then you should include in the employment contract that it may an option. Failure to do so and then paying notice in lieu may be deemed to be a breach of contract as you have no contractual right to do it.

The risk here is not that the employee will then take you to court for paying notice in lieu, that would be unlikely as there would have been no loss to the employee. The risk is that if there is no clause allowing you to do it then paying notice in lieu may be classed as a breach of contract and the employee can then argue that as the employer breached the contract by paying notice in lieu, the employee is therefore entitled to also breach the contract and not comply with other contractual clauses such as Confidentiality or Restrictive Covenants.

Further Points Relevant to both Statements and Contracts

In recent years you will have seen articles in the press regarding whether individuals are classed as employees, ‘workers’ or self-employed. The most high profile cases involved Pimlico plumbers and Uber, who averred that the individuals working for them were self-employed but the court found that they were ‘workers’ and therefore entitled to receive holiday pay etc.

Obviously Statements or Contracts of Employment do not need to be issued to the self-employed or contractors, but they must be issued to employees and also those with ‘worker’ status, along with those on non-standard contracts such as zero hours, temporary staff or those employed for a fixed term.

If an employer has not issued contracts, employees can make Tribunal applications and seek damages. In practice, however, a failure to issue a Statement or contract is normally added to other Tribunal claims e.g. unfair dismissal rather than being stand alone claims.

Receiving a contract is a statutory right and therefore 2 years’ service is not required for employees to claim, or for claiming unfair dismissal due to them asserting their right to receive a Statement or Contract. The penalty for not issuing a contract is either 2 or 4 weeks’ pay, subject to the statutory maximum although the award will be significantly higher if an unfair dismissal claim succeeds.

The question we are most often asked regarding contracts and Statements is whether they are binding if an employee does not sign. Clearly it is better if the contract is signed so you should encourage employees to do so, although as long as you can show it has been received by the employee then it is usually binding. Generally, by turning up for work and fulfilling their contract employees are deemed have accepted the contract. In these circumstances the employee is ‘implied’ to have accepted the contract.

An interesting case that illustrates this was FW Farnsworth Ltd v Lacy [2012] where an employee had been promoted but had not signed the contract that was issued following the promotion. When he left, he argued that the restrictive covenant that was in the contract did not apply because he had never signed it. However, the High Court found that it did apply, because he had operated in accordance with it, and had taken advantage of new terms in the contract such as pension and medical insurance benefits. By taking advantage of these benefits he had indicated his acceptance of the contract.

With regards to when an employment contract becomes binding, once an unconditional job offer has been made and accepted, either orally or in writing, a binding contract comes into force.  Any subsequent withdrawal of that job offer will amount to a breach of contract and a termination of employment, allowing the individual to bring a claim to an employment tribunal. Where such a claim is successful, the tribunal is likely to order the employer to pay compensation to the individual equivalent to the contractual notice period even if they never actually started the job!

Finally, specialist wording is needed to cover issues such as the legal requirements regarding night working, or the serve and learn specialist contracts for apprentices and 186hr can help with that. You should also check the wording of a contract where employees are required to work Sundays as there are certain regulations that must be complied with. Likewise, if you operate an annualised hours contract rather than hours being fixed per day or week then this needs to be made clear in the contract.

We hope you found this week’s blog useful. As always, if you would like to discuss contracts, Statements of Written Particulars or any other HR matters further please contact us.