Employment contracts

In
this series, we delve into the XpertHR reference manual to find essential
information relating to one of our features. This month’s topic…

Summary


It is important for contract terms to be in writing


Terms may be assumed by the courts to be implied if there are no written terms


The contract should be seen as a flexible compromise between the needs of the
parties


The contract assumes great importance when the parties are in dispute


Statutory protection for employees may be dependent on the contract terms

Importance
of written terms

Inevitably,
there will be disagreements about the terms and conditions of employment. These
can be solved without recourse to litigation if the contract terms are clear
and unambiguous. If the terms are verbal, or not even specifically agreed upon
by the parties involved, the situation is ripe for dispute, and there is
nothing to hand to clarify the terms.

It
should not be assumed that verbal terms cannot be proved. The claimant –
frequently the employee – must prove their claim, and if they have some
evidence, the burden of proof passes to the employer. The court or tribunal
will then make its decision on the balance of probabilities. In practice, the
evidence may be no more than what each party alleges it said or heard.
Therefore, both employee and employer statistically have a 50 per cent chance
of success.

If
terms are verbally agreed, it is helpful to have a note of these terms, either
made at the time, or immediately afterwards. This could be placed on file or
take the form of a letter confirming the agreement or new term. This is not
absolute proof of the term, but it is admissible evidence, and can be valuable.

Key
terms, such as work, location, hours, pay, holiday and notice, have to be given
to the employee in writing by the end of their second month of employment. This
is not a contract, but good evidence of the terms as seen by the employer.

Implied
terms

If
there is no written agreement on a particular issue, the court or tribunal may
assume a term is implied.

This
could be based on:


The conduct of the parties


A custom in the workplace, trade or area of employment or the region of
employment


A custom implied in common law


The fact the court or tribunal believes the parties would have agreed to the
term had it been put to them

Reliance
on implied terms only results in uncertainty, as there can be no guarantee that
a term will be implied or what that term will be. As implied terms cannot
override an express term, it is advisable to put the terms in writing.

A
flexible compromise

The
contract does not have to be fair or reasonable – the courts will enforce it as
agreed. However, a contract too one-sided is not likely to result in a long or
harmonious relationship. The contract is best regarded as a compromise between
the (sometimes conflicting) needs of both parties.

There
is no automatic power to change the contract terms. So an employer wanting
flexibility must build this into the employee’s contract. Similarly, neither
employer nor employee should assume that conduct contrary to the contract
terms, means the actual contract has changed. Conduct or custom can fill the
gaps in the contract, but do not override contract terms.

Importance
of the contract

The
most generally recognised benefit of the contract – especially a written one –
is its usefulness in avoiding disputes. It is decisive in a breach of contract
claim, as the contract terms alone can be taken into account.

It
is less decisive in unfair dismissal claims, although it is certainly important
when the employee alleges constructive unfair dismissal. This is where the
employee has resigned, but their resignation has been caused by a serious
breach of contract by the employer (Employment Rights Act 1996, section
95(1)(c)). This breach must be a breach of an actual contract term such as in
Western Excavating (ECC) Limited v Sharp 1978 IRLR 27 CA.

But
when deciding whether the dismissal was fair, the contract terms are not
all-powerful. The tribunal may decide the dismissal was fair, even if the
employer has broken the contract.

In
Farrant v The Woodroffe School 1998 IRLR 176 EAT, the employer insisted on a
change of duties, even though it was in breach of contract. The employer had
been wrongly advised that it had a legal right to make the change. However,
taking all the circumstances into account, the Employment Appeal Tribunal
decided that the dismissal was fair.

Statutory
provisions

Some
statutory provisions are based on the contract terms, and protection against
unfair dismissal is only given to employees. It is dependent on the contract
being one of employment, and is generally denied to the self-employed. They
have some limited rights to claim unfair dismissal, such as when they have been
dismissed because they sought to exercise their right to a representative in
disciplinary or grievance proceedings (Employment Relations Act 1999, section
13 referring to the Employment Rights Act 1996, section 230(3)).

In
other situations, statute provides a minimum benefit which replaces any lesser
term in the contract, as with statutory minimum notice in the Employment Rights
Act 1996, section 86.

Practice
example

Facts:
A shop expected its staff to work additional hours in the run-up to Christmas.
The contract made no provision for overtime, simply stating that their hours of
work were ‘9am to 5.30pm with an hour for lunch’. The staff had worked the
additional Christmas hours for several years without complaint, but this year
there had been a pay dispute, and the employees were not happy.

They
refused to work the additional hours, so the employer held a disciplinary
hearing and dismissed them. It was surprised when the tribunal upheld the employees’
claims of breach of contract and unfair dismissal.

Comment:
The contract set out the hours of work. The custom of working the additional
hours did not change the express contract term, so the employer had broken the
contract. It had dismissed the employees for refusing to do something they were
not legally bound to do. This is normally ruled as an unfair dismissal, and
would be here.

The
employer should have carefully considered the work requirements and included a
contractual term permitting them to require staff to work overtime. It would be
difficult to change the contract to include such a term as the employees would
be unlikely to accept it and there is no automatic right to change the terms.
But, having restored good relations with staff beforehand, this is what the
employer needs to do. If this cannot be achieved, then the employer would need
to be more conciliatory in its overtime requests.

Action
point checklist


Remember the contract is the legal foundation of the employment relationship


Put the contract in writing, or ensure there are written particulars or other
evidence of the contract terms


Write contract terms so that they are clear and unambiguous


Make the contract sufficiently detailed so that implied terms will not be
necessary


There is no automatic power to change contract terms, so build the flexibility
to vary them into the contract

Questions
and answers

Why
are written terms of employment important?

Disagreements
over the terms and conditions of employment can be solved without litigation if
the contract terms are clear and unambiguous. When the terms are agreed
verbally, or are not agreed to by both parties, the situation is open to
dispute. Terms agreed verbally should be noted either at the time of the
agreement, or immediately afterwards.

What
are written particulars and when should the employee receive them?

Written
particulars of the key terms of employment, such as hours, pay, holiday and
notice, must be given to the employee in writing by the end of their second
month of employment. That statement is not the actual contract, but provides
good evidence of the terms as seen by the employer.

What
happens if there is no written agreement of the contractual terms?

The
court or tribunal may assume a term is implied based on the conduct of the
parties, a custom in the workplace or the industry as a whole, a custom implied
at common law, or its belief that the parties would have agreed the term had it
been put to them.

Reliance
on implied terms results in uncertainty, so it is best to put all contract
terms in writing.

Can
workplace custom or conduct override the written terms of a contract?

Not
usually. The courts tend to enforce the contract as agreed. The contract does
not have to be fair or reasonable. An employer requiring flexibility must build
this into the staff contract. Neither employer nor employee should assume that
conduct contrary to the contract terms will change the contract.

Conduct
or custom can fill the gaps in the contract, but cannot usually override the
contract terms. However, it is possible for custom to override written terms –
if, for example, it has been customary for many years to ignore a written term,
and the employees have reasonably come to expect it to be ignored.

In
what types of dispute are contracts important?

In
a breach of contract claim, the terms are decisive. They are less decisive in
unfair dismissal claims, although they are important when the employee alleges
constructive unfair dismissal. This is where the employee has resigned, but
their resignation was caused by a serious breach of contract by the employer.

In
redundancy cases, tribunals do not always use the contractual definitions when
interpreting the statutory redundancy provisions.

Are
statutory provisions dependent on the type of contract?

Some
statutory rights, such as unfair dismissal and redundancy pay, are dependent on
the contract being one of employment, and are generally denied to those who are
self-employed.

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