• Back to Basics – Creating a contract for your employees

    My friend – let’s call him Brighton- is a lovely guy. A serious partygoer in his youth, he’s reformed into an almost serious human being. A year ago he founded a start-up business, the culmination of a dream which saw him able to leave a dead-end job he hated. It’s been so successful he’s now decided to take on staff. Over a coffee in our favourite café, he proudly he waves a piece of paper in front of my face.

    “I downloaded an employment contract off the internet. What do you think?”

    I’m off the clock, and he’s a friend, not a client, but I just can’t stop myself taking a look. It’s horrible. The law terms used are American, not British. There’s no mention of holiday, no mention of overtime or pensions. I’m going to have to be upfront and honest with him.

    “Brighton, this just isn’t good enough.”

    His second coffee arrives, a triple espresso shot. He downs it in one. “Oh, don’t go all lawyer-ey on me. Surely it’s just a formality.”

    “In a way, yes, because even if you don’t have a piece of paper, there’s still a contract in law. Employees and employers have certain rights which don’t need to be written down – they’re called “implied rights.” The first of those is the “right to mutual trust and confidence” which includes all the obvious necessities for an employment relationship to exist. For instance, your employees are entitled to be paid for work they do, and you are entitled to expect them to turn up for work as arranged, and not to steal from you or damage your property.”

    “Wow.” He laughs, a little nervously. “They’d better not.”

    The stories I could tell him… Another time perhaps. “Then there are statutory rights specifically for employees. Because they are written in law, they can’t be broken or overruled. For instance, employees have the right to a certain number of statutory days holiday, or to pension payments if they qualify.”

    “I get what you’re saying.”

    I’m not sure he does. “All these implied terms are taken as given even if there’s no bit of paper to prove they exist. If they are breached, the contract is potentially broken. You can dismiss an employee, or they can leave and take you to a Tribunal for constructive dismissal.”

    “So, like I said, why do I need a piece of paper?” he says, bullishly. All that caffeine is starting to take effect. “The people I’m taking on are mates of mine. I’m going to treat them like family.”

    “I’m sure you will. But you do need to get things in writing.” Like I said, he really is a lovely person. But when it comes to running a business and making—or losing—money, friendships can quickly turn sour.

    “There’s a third issue I forgot to mention. Implied terms can include any behaviour that, because it has been repeated over a long time, amounts to “custom and practice.” For instance, if you refuse to pay an employee overtime but they can show that other employees have always been paid it, they may be able to prove that overtime is part of the implied “custom and practice” of the business. That’s why it’s best to set out clearly what you and your employees can expect from your working arrangements. Otherwise, you could find yourself in trouble further down the line.”

    “Okay. You’re right.” He gives me a winsome smile. “Help me out, Zoe.”

    “Of course.” I give him a winsome smile back. “For the usual hourly rate.”

    The Contract
    The basic employment contract Brighton needs is sometimes also called a statement of main terms and conditions of employment which we decide to set out as a letter. Whatever the format, it must contain the following essentials:
    • Names of employee or worker;
    • Date employment or engagement begins;
    • For employees only: date of continuous employment;
    • Rate of pay and frequency (weekly, monthly, etc) of payment;
    • Hours of work including days of the week and whether hours might be variable;
    • Holiday entitlement (including public holidays) and holiday pay;
    • Any other benefits;
    • Notice period (may also refer the worker to the law or to the provisions of a reasonably accessible collective agreement);
    • Job title or brief description;
    • If applicable: period of fixed-term contract;
    • Any applicable probationary period;
    • Place of work and address of employer;
    • Whether employee or worker is expected to work outside the UK for over 1 continuous month;
    • Any training that the employee is required to complete and whether it is paid for;
    • Disciplinary and grievance procedures.

    I also warn Brighton that employees and workers may make a complaint to an employment tribunal should an employer fail to provide a section 1 statement or if they provide an inaccurate or incomplete statement. The tribunal will decide what particulars should have been included or referred to in the statement in order to be compliant with the statutory requirements. If an employee or worker brings a successful substantive claim in the employment tribunal, such as an unfair dismissal claim, and they are able to show that they were not provided with a compliant section 1 statement, they may be awarded an additional 2 to 4 weeks’ pay.

    Brighton sighs happily. “You’ve saved me from disaster.” He takes the template contract away with him – I also send him a copy by email – so that he can fill in the details for his potential employees and see if he wants anything else added.

    A week later he gives me a call. Excitedly, he explains that he wants to do a contract that’s “bigger and better than the norm”. (Why did I call it basic? I should have known that would wind him up). He’s gone from not-being-bothered to going overboard. Every single possible eventuality is going to be thrown into the mix, including a Bring your Pet Friday and a strict Goth dress code.

    “This is too detailed,” I explain. “You need to keep your contract as basic as you possibly can, because it is a legal document. Failing to adhere to any one of the terms could potentially be a breach of contract that could end up in court.”

    “Oh, it’ll be fine,” he says breezily. “I told you, they’re all mates.”

    “Relationships can change over time, and a legal document is there to protect you against those changes. Like a pre-nup.”

    This strikes a chord – his last relationship was a nightmare. “I suppose…”

    “Also, consider what happens if you need to change the contract. For instance, if you can’t do Pet Fridays anymore. Because it’s in a legal document, you would then have to amend the terms of employment. Unfortunately, that’s not as simple as just handing out a new contract with Pet Fridays removed. You need to discuss the change with your employees, and get their agreement to the change, before serving them formally either with a letter noting the change, or with a wholly new contract. If any of them refuse to accept the change, you have to bring their employment to an end and then restart their employment with a new contract – which they may not accept. It can be really difficult and distressing, and ultimately could end up at a Tribunal.”

    He shakes his head, appalled. “Is that the thanks I get for trying to be nice to people?”

    “You can still do Pet Fridays, just don’t mention it in the contract. You need a second document – a non contractual Staff Handbook. That’s where you put anything that’s “nice to have” rather than absolutely essential, such as the fact that employees can bring their pets to work on a Friday, and that you prefer them to dress in black. You can change the information in the Handbook if you want, without needing to consult with staff – although that’s always a good idea and shows mutual respect. You should refer to the Handbook in your contract or statement of written terms and conditions so that employees know where to find this information, and give them a hard copy or an online link so they can read it themselves.”

    “Yeah. That makes sense.”

    The Staff Handbook
    “If not already in the contract or Section 1 statement, the following are required by law:

    • Disciplinary procedures and rules
    • Grievance procedures and rules
    • Information about pension and how to apply
    • Protection against dismissal or detriment for whistleblowing
    • Protection against dismissal for taking action over a health and safety issue

    The following are also necessary:

    • Information about statutory rights: ordinary parental leave, shared parental leave and pay, maternity, paternity and adoption leave and pay, parental bereavement leave and pay, time off for dependants, time off for public duties, and the right to make flexible working requests
    • Information on redundancy pay after 2 years’ continuous service, if their role becomes redundant
    • Policies on preventing discrimination and sexual harassment
    • A data protection/privacy policy that conforms with ICO requirements

    You may also, for legal reasons, want to include policies on anti-bribery, equal opportunities, and anti-facilitation of tax evasion, plus, of course, anything else that is a desirable part of making your business run smoothly, such as restrictions on internet or email use.”

    I’ve lost him again. “Oh, well, make me one of those then, yeah, put all that stuff in.”

    “Brighton.” I give him a stern look. “You need to read your policies, and make sure your staff know what they contain. It’s true, a written policy that never gets looked at is better than nothing at all – it may help you if, for instance, you get taken to a Tribunal for disability discrimination – but failing to follow your own policies will land you in trouble. They are there for a reason, you know.”

    “I just want to run my business,” he moans. “Why does it all have to be so complicated?”

    “That’s why I’m here.” I pat him on the back. “I’ll be sending you my bill.”

    “How about free coffees for the next year instead?”

    “Nice try.”

    Our solicitors are always on hand to give you friendly, professional advice. Please contact Zoe on 0203 858 9765 or email zoe@mulberryssolicitors.com. Mulberry’s has offices in Brighton and London.
    This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

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