When was the last time you looked at your contracts of employment?

13th June 2011

When was the last time you looked at your contracts of employment?

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When we see a new SME client for the first time, it is usually because they have a problem and they would like our help to solve it. It is also very likely that, as part of the problem solving process, we will ask to see the relevant contract of employment. From our experience, the chances are that the contract will be very old, very bad or non-existent. Once the initial panic is over, we will take some time to get to know our new client, find out about their business and help amend or draft from scratch their most important employment documents: contracts of employment and staff handbooks.

Why have a contract of employment?

It is a statutory requirement that every employee is given a statement of their main terms and conditions of employment within eight weeks of commencement of employment. The information that should be included in the statement is set out in the Employment Rights Act 1996 and covers all the terms you would expect to see, such as pay, holiday, and sick provisions.

Although there is no stand alone award for a failure to give a statement of terms and conditions, if an employee brings certain claims in the employment tribunals, most importantly a claim of unfair dismissal, the tribunal can award two weeks and up to four weeks’ capped wages if you haven’t provide terms and conditions. The cap on a week’s wage is currently £400.

The main reason for having a proper contract of employment in place should not be the penalty that it attracts. When dealing with terms and conditions, UK employment legislation only really protects the less senior and less qualified. For example, if you are paying more than the minimum wage (currently £5.93 per hour), salary will not be determined by parliament, but by your contract of employment. In times of high unemployment, you will have the upper hand on the content of your contract of employment. If you have not spent time taking advantage of this fact, the employment tribunal will determine the content of your contract of employment for you.

If you get into a dispute with an employee and you can’t resolve it internally, the employee can ask an employment tribunal to decide on the terms. With no terms and conditions in writing, it is going to be difficult to persuade a tribunal that you are a reasonable employer who should be believed.

Let’s take for example an employer who has no contract of employment and who typically pays an annual bonus. The bonus provisions are not set out in writing, but the bonus is usually based on the profitability of the company and a view of each employee’s performance. If an employee makes a claim for unpaid bonus on the termination of his employment the tribunal is likely to find in his favour because, with nothing to say otherwise, the bonus had become contractual. A good contract with provisions dealing with payment or nonpayment of the bonus on termination of employment would have helped in this situation.

How hard can it be to draft a decent contract?

Well, quite hard. We have seen businesses that have ‘borrowed’ a template contract from their best friend who works in a much bigger company or downloaded a free template off the internet. If you do a simple google search, you can find a lot of free template contracts of employment and it is quite common for businesses, particularly SME’s, to use them.

Although you may have covered the basics, we do see a number of problems caused by badly completed or amended contracts. The most common issue we see is part time employees with full time benefits: they may only work three days per week, but they still have 28 days’ holiday. It is also very common to be explaining to new clients that they do not need to pay two months full pay when an employee is off sick. And please don’t get me started about why it is not appropriate to have a staff handbook when you only have one employee…

Compliance with the law is not the most important purpose of contracts and staff handbooks. The most important purpose is to allow you and your business to set the standards that you expect in the workplace and to make sure that your company ethos is made clear to staff. A good contract and staff handbook should include your company aims and ethics as well as the basics. It should also include properly drafted protection for your business covering confidentiality, copyright and potentially, post termination restrictions. Having gone to the trouble of drafting these documents, they also need to be reviewed and updated regularly, as the law changes. For example, this year we are making a lot of changes to contracts that include a retirement provisions to take into account the repeal of the default retirement age.


As we like a challenge, if you have any concerns about your contracts please send them to us at info@employease.co.uk with your contact details and we will tell you what we think about them for free. If you don’t have contracts of employment and are wondering how to go about putting them together, we will offer you a free hour of our time to talk you through the process.

The poll

It is also helpful to us to know a bit about our readers, so if you are an employer, could you please also complete the poll question below. We are also just trying out this bit of wordpress technology so please indulge us!


[polldaddy poll=5104044]

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