What should we include in our employment contracts?

Do your employment contracts adequately cover your legal obligations?

In April 2020 some changes were introduced to Section 1 of the Employment Rights Act 1996 meaning that employees (including workers) are to be given a written statement as to the terms and conditions of their employment. 

The Employment Rights Act 1996 sets out the minimum amount of information that a written statement should contain. The written statement (also commonly referred to as a “Section 1 statement”) can form the basis of an employment contract and should be given to the employee or worker, at the latest, on the day the employment starts.

Despite these changes and almost a year on, we continue to see many employment contracts that do not fulfil these obligations and thought it would serve good purpose to explain what is required and why it is important.

What information is required in an employment contract?

A good way to give your employees their section 1 statement is to incorporate it into the employment contract.

The following information must be clearly set out: –

  1. The names and addresses of the employer and employee/worker.
  2. The date when employment started or is due to start and the date the continuous employment began including details of any probationary period.
  3. The employee’s or worker’s job title or a brief description of the work.
  4. The employee’s or worker’s normal place of work and whether they are required to work outside the UK for over a month.
  5. The rate of pay or the method of calculating it and the interval of payment (for example, monthly or weekly).
  6. The hours and days of work and if these are variable, details of how they vary.
  7. Holiday entitlement and holiday pay.
  8. Details of sick leave.
  9. Details of other paid leave entitlements.
  10. Details of any other benefits the employee or worker is entitled to and if these are to be non-contractual these should be clearly expressed.
  11. Details of the disciplinary and grievance procedures you have in place.
  12. Details of any pensions or pension schemes applicable to the employee or worker.
  13. The amount of notice the employee or the worker is entitled to receive and required to give.
  14. Details of any training which you require the employee or worker to complete.

If you have an employee handbook which sets out the precise details of any matters contained in the contract of employment then rather than setting out the detail to matters such as sickness and holiday, it is good practice to refer the employee or worker to the relevant policy covering it, ensuring that you do not make the policy contractual, but rather it remains a standalone non-contractual document.

Why is it important and what are the consequences of getting it wrong?

The simple answer is that it is a mandatory legal requirement. Whilst failing to provide an employee or a worker with an adequate section 1 statement cannot in itself entitle an employee to bring a stand-alone claim in the Employment Tribunal, they could add it to another claim they are entitled to bring, for example unfair dismissal. The amount of compensation available for breaching section 1 of the Employment Rights Act 1996 will depend on the circumstances but an employee or worker could get up to 4 weeks’ basic pay (subject to the statutory cap).

Alternatively, an employee or worker could make an application inviting the Employment Tribunal to determine what the terms are based on the circumstances of their role.

The drawbacks in both these scenarios would be the potential reputational damage to the business which could then have a subsequential effect of hindering employment applications from good quality candidates being received. The best employees search for the best employers, and bad reviews and Employment Tribunal claims are likely to deter them from applying.

Another reason why it is important is that apart from the legal obligation, it is a matter of clarity which benefits both you and your employees. Having a contract or a written statement which clearly sets out the terms and conditions of employment avoids mistakes, confusion and unnecessary disputes.  

What should you do now?

The first thing to do is review your contract template. The obligation to provide the information set out above is for new employees or workers that you take on. Therefore, I recommend that you amend your contract template to include any information that is missing for new starters.

You may also wish to synchronise the changes to your contracts for your new employees with the contracts of your current employees so that your current employees are also clear about the terms and conditions of their employment.

Whilst reviewing and updating your contracts, it is also a good opportunity to assess whether the terms of the contracts are suitable for each employee. You may find that you have complex contract clauses for those employees with junior roles and not so adequate clauses for those with senior roles.

If you need any guidance or assistance with reviewing your contracts or any other questions, my colleagues and I would be happy to help so please feel free to get in contact.

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The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.

The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.

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