An employment contract should do much more than state the salary and working hours of your employees. In addition to forming a legally binding agreement between employer and employee, employment contracts give you the opportunity to outline your expectations for your employees, as well as protect your business from misconduct.
In this article, we will explain what contracts of employment are, what an employment contract should include, and how regularly you should undertake employment contract reviews to stay in compliance with legal regulations.
What Is an Employment Contract?
An employment contract is an agreement made between an employer and their employee that establishes their legal rights and responsibilities, as well as the terms of their employment. When an employer makes a job offer, they and their prospective employee each sign the contract of employment and are thereby legally bound to its terms, unless the contract is amended or expires.
The content of employment contracts has been shaped by several pieces of legislation passed with the intention of protecting the rights of employees, while safeguarding the interests of employers.
Some of the most significant laws that have shaped contemporary employment contracts include:
- The Employment Rights Act 1996: This law protects the basic rights of employees, such as their right to holiday pay and access to the written terms of their employment contract.
- The National Minimum Wage Act 1998: This law establishes the minimum wage rates that employers must pay their employees.
- The Working Time Regulations 1998: These regulations outline the maximum number of hours an employee can work each week, as well as their right to breaks and paid annual leave.
- The Health and Safety at Work Act 1974: This law offers guidelines that employers must follow to ensure that their workplace accommodates the safety and welfare of their employees.
- The Equality Act 2010: This law prevents employers from discriminating against prospective employees on the basis of certain characteristics, such as their gender, age, race, or any disabilities they may have.
What Are the Core Elements of an Employment Contract?
What Does an Employment Contract Include?
An employment contract is comprised of different types of terms, some of which can be agreed verbally, some of which must be written down, and others which are implied or imposed by UK employment law. It is important for employers to understand which contract terms can be consented to verbally or implicitly, and which need to be covered in a written employment contract; otherwise, they may put themselves and their business at risk of legal claims.
The terms stated in an employment contract are known as the ‘express terms’. These often include:
- Name and address of employer and employee
- Place of work
- Hours of work
- Job title
- Description of duties
- Probationary period length
- Pay rates and intervals
- Pay dates
- Annual leave entitlement
- Sickness and absence pay
- Pension arrangements
- Requirement to work overseas
- Disciplinary and grievance procedures (or information on where to find out the process for these)
What Are Implied Terms?
The ‘implied terms’ of an employment contract are not explicitly stated within the written contract, as these are universal terms that an employer can assume their employees will follow without the need for instruction. These include:
- Mutual Trust and Confidence: Employers and their employees are expected to be honest with one another and treat each other with respect in order to protect the mutual trust between them. For example, an employer would be expected to investigate grievances or complaints properly, while an employee would be expected not to misuse company resources.
- Duty of Care: Employers are responsible for ensuring their employees’ physical and mental health is safeguarded throughout their employment.
- Fidelity: Employees should not act against the interest of the employer during their employment, such as misusing company data to their own advantage or damaging the reputation of the business. It is important to note that the duty of fidelity term only applies during the employment period, not afterwards. To prevent an employee from acting against your business after their employment has expired, you would need to include restrictive covenants in their employment contract.
- Obeying ‘Reasonable’ Instruction: Employees are expected to obey lawful, fair and ‘reasonable’ instructions from their employer.
Additional Terms to Include in an Employment Contract
While most of the compulsory terms of an employment contract provide clarity and protection to employees within their job role, there are many additional terms that employers would be wise to consider to protect their business. These include:
- Probation period: Including a probationary period clause in your employment contracts allows you to manage expectations and avoid paying a full notice period if it becomes apparent that your new employee is not a good fit for your business.
- Directorships: Including additional terms in contracts for senior managers and directors can be useful to outline the requirements of those roles.
- Holiday pay and sick pay requirements: These terms give you the opportunity to clarify the requirements that employees must meet to be able to take company sick pay or to assume some management responsibility during their annual leave.
- Flexibility: Carefully wording an employment contract allows you to impose alternative duties on your employees or request that they work from different locations in certain scenarios, giving you more flexibility when necessary.
- Confidentiality: Without a written agreement in place to protect your company contacts and business information, your former employees could use that information to help your competitors or set up in competition against you.
- Deductions from wages: The ability to deduct money from employee wages can be useful for the reimbursement of loans, overpayments or their failure to return company property, but you must have an agreement in writing to do so.
- Expenses: These terms allow you to specify which expenses will be covered by the business and the method for their reimbursement, reducing the risk of fraud or clerical errors.
- Pay in lieu of notice and/or garden leave: When an employee is leaving, these clauses are extremely useful to minimise disruption, both for your business and your important clients.
- Restrictive covenants: An employment contract can include reasonable restrictions about what your employees can do after they finish working for you, but only if these restrictions have been correctly worded in a written agreement
- Social media and employment policies: These terms could stipulate what social media activities employees can do in the employer’s name and time.
When Does an Employment Contract Begin?
An employment contract begins once an employee starts work, even if the contract of their employment is not yet in writing. However, employers are legally required to have written terms and conditions in place within 2 months of the employee’s start date.
Failing to produce a written employment contract within this time period will put the employer at risk of legal claims, while leaving their business unprotected. Furthermore, should problems arise with the new employee, it can be more difficult to manage the situation without a clear contract in place.
There are even some occasions where an employment contract can begin before the start date:
- If the job offer is accepted verbally or in writing.
- If the offer was unconditional or the person met all the conditions of their job offer, such as providing the appropriate references.
When Should an Employment Contract Be Reviewed?
At Newtons Solicitors, we are conscious of the frequent changes to employment law and the impact these can have on employers. The exacerbation of several family-friendly provisions in the last eighteen months (flexible working/neonatal care, etc), for example, are all recent changes which had ramifications on employment practice that could require an employment contract review notwithstanding the Employment Rights Act 2025 roadmap.
This is by no means a straightforward process. Making changes to an employment contract must be preceded by ample notice to the employee in question, followed by a request for their written agreement to the proposed changes. Then, in order to finalise the changes, you must either provide your employee with a new contract or an informative letter.
If your employment contracts are in need of review or you need support creating the contract terms for an original job role, our employment law team would be delighted to help. We provide bespoke employment contracts tailored to the needs of your business and the speciality of your employees. Please contact us today for support with your employment contracts or to discuss our services with one of our advisors.