Contract of Employment
Key points
§ A person enters into a contract of employment (or contract of service) with an employer when he (or she) agrees to undertake specified duties (and assume specified responsibilities) in return for an agreed wage or salary. The two essential features of a contract of employment are control and mutuality of obligation. There is 'control' when an employer tells the employee what to do, when to do it and how it is to be done (or, in the case of a highly-qualified and skilled employee, the manner in which it is to be done). But the most important ingredient is 'mutuality of obligation'.
§ As a rule of thumb, there is 'mutuality of obligation'
a. when an employer undertakes to provide a person with work on specified days of the week, for a specified number of hours, and for a specified or indefinite period; and
b. the person in question accepts the employer's offer of employment and undertakes to carry out that work with due diligence and efficiency for an agreed wage or salary, under agreed terms and conditions, and to obey the employer's lawful instructions.
Workers who are hired on a casual or 'as and when required' basis, who can come and go as they please, and who are free (without penalty) to accept or reject any offer of occasional work that comes their way, are not 'employees' in the strict legal sense of the word. Such workers are said to be hired or engaged under contracts suorum generum (that is to say, of their own kind). However, once any such casual arrangement is regularised; once an employer puts such an arrangement on a permanent footing (whether for an indefinite period, or for a specified number of days, weeks or months), and the worker agrees to work for the employer for that period (and on mutually agreed terms and conditions), the worker becomes an 'employee' in the strict legal sense of the word.
Note | Workers who are not employees nonetheless enjoy the rights and protection afforded to all workers (including employees) by legislation such as the Working Time Regulations 1998, the National Minimum Wage Act 1998, the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000, the Health & Safety at Work etc Act 1974, the Sex Discrimination Act 1975, the Race Relations Act 1976, and the Disability Discrimination Act 1995. |
§ This over-simplified definition of a contract of employment (which has no statutory definition) also highlights the difference between an employee and a self-employed person. A self-employed person is engaged under a contract for services. He (or she) owes no loyalty to the person who hires him other than to complete one or more specific tasks within specified time limits in return for an agreed fee. He is his own master, normally provides and uses his own tools and equipment, submits invoices for services rendered, prepares annual accounts for scrutiny by the Inland Revenue, and pays his own taxes and national insurance contributions. He is in business to make a profit and is personally responsible for any losses. He must register for VAT if his annual turnover exceeds a specified amount.
§ A contract of employment comes into being and is enforceable as such as soon as employment commences. The written statement of initial employment particulars required to be issued by an employer to every new employee is not, as is often supposed, a contract of employment. It merely provides evidence of the contractual terms, particularly if the information it contains is limited to that prescribed by sections 1 to 7 of the Employment Rights Act 1996. Other evidence of the contractual terms can be adduced, for example, from a collective agreement, the employee's job description, staff and works handbooks, policy documents, safety rules, custom and practice within the employing organisation or industry, and so on. There are also implied terms.
§ When an employee remarks (or complains to an employment tribunal) that he (or she) has not yet received his 'contract of employment' he is, in reality, talking about the written statement referred to in the previous paragraph. The employer who neglects to provide an employee with a written statement explaining the terms and conditions of the latter's employment is not thereby denying that employee his contractual rights (as some employers appear to believe). Nor does an employer have anything to gain by withholding the written statement until two months after the date on which the employee was recruited. The sooner an employee knows what is expected of him (and what his contractual rights and obligations are), the better.
Working time as a term of contract?
§ Under regulation 4(1) of the Working Time Regulations 1998, an adult worker (whether employee or otherwise) has the statutory right not to work more than an average 48 hours in any week (calculated over a reference period of 17 consecutive weeks). In Barber & others v RJB Mining UK Limited [1999] IRLR 308, the High Court declared that, notwithstanding an employer's duty under regulation 4(2) to take all reasonable steps to comply with regulation 4(1), paragraphs (1) and (2) did not need to be read together. Regulation 4(1) stood alone, and clearly imposed a contractual obligation on an employer to ensure that no person in his employ works more than an average 48 hours a week. That, said Mr Justice Gage, was a mandatory requirement which had to be applied to all contracts of employment.
Duties of employer
§ Although a contract of employment or written statement will rarely say so in as many words, an employer owes a common law and implied contractual duty to his (or her) employees to take reasonable care for their safety. He must provide a safe place of work, safe working methods, safe plant and equipment, suitable training and instruction, competent supervision, and so on. An employee who is injured as a direct result of his (or her) employer's negligence, may sue for damages in the ordinary courts. If the employer is in breach of his statutory duty to ensure, so far as is reasonably practicable, the health, safety and welfare at work of the employee in question, he runs the risk also of being prosecuted under the Health & Safety at Work etc Act 1974.
§ An employee has an implied contractual right to be treated with dignity and respect. He (or she) need not submit to foul language or abuse, or to false accusations or, indeed, to any conduct that destroys the very basis of the employment contract. If he is victimised, harassed, disciplined, subjected to any other detriment, dismissed (or selected for redundancy) on grounds of sex, marital status, gender reassignment, colour, race, nationality, disability, trade union membership (or non- membership), or for asserting one or other of his statutory rights in employment (including his right to health and safety protection), he can complain to an employment tribunal. A woman (or man) is entitled to the same pay and conditions enjoyed by men (or women) in the same employment if she (or he) is employed on like work or on work rated as equivalent, or on work of equal value.
§ Any term in a contract of employment that purports to override or negate an employee's common law or statutory employment rights is null and void.
Duties of employee
§ For his (or her) part, the employee must serve his employer honestly and faithfully. He must respect his employer 's property and trade secrets, and must carry out his duties to the best of his abilities. If he ignores his employer's lawful instructions, or is uncooperative, disruptive or negligent in doing the job he is employed to do, he is in breach of contract and runs the risk of being dismissed. However, the common law right of an employer to dismiss an employee is vitiated to an extent by the statutory right of most employees not to be unfairly dismissed (a subject that is discussed at length elsewhere in this handbook).
Strikes and other industrial action
§ A strike, 'go slow' and (in some circumstances) a 'work to rule' is a breach by the employee of his (or her) implied duty to cooperate with his employer. Under the common law, an employee who withdraws his labour or services in this way is deemed to have repudiated his contract and has effectively dismissed himself. In practice, it is open to the employer either to accept the repudiation and bring the contract of employment to an end or to affirm the contract and allow the employee to return to work after the industrial action is over.
§ However, under statute law (notably the Trade Union & Labour Relations (Consolidation) Act 1992, as amended), the selective dismissal of one or more (but not all of the striking workers) or the selective reinstatement or re-engagement of one or more striking workers (following the dismissal of all of them), can be challenged before an employment tribunal – if, but only if, the strike was official (ie, endorsed by the trade union in question following a vote in favour of such action). Any person taking part in an unofficial strike or other unofficial industrial action thereby forfeits his right to complain of unfair dismissal and can be dismissed with impunity (ibid. sections 237, 238 and 238A).
Equality clause
§ Section 1 of the Equal Pay Act 1970 (as amended) cautions that 'if the terms of a contract under which a woman is employed at an establishment in Great Britain do not include (directly or by reference to a collective agreement or otherwise) an equality clause, they shall be deemed to include one'. This means that, if a woman is employed on like work with a man (or on work rated as equivalent, or on work of equal value) any term in her contract that is, or becomes, less favourable to her than a term of a similar kind in the man's contract shall be treated in law as so modified as not to be less favourable.
Collective agreements
§ To the extent that a collective agreement between an employer (or an employers' association) and one or more trade unions includes provisions relating to remuneration, working hours, holidays, sickness benefits, and so on, that agreement will be deemed to form part of the individual employee's contract of employment – always provided that his (or her) rights under that agreement are included (or, in one or two instances, referred to) in the written statement of terms of employment issued in accordance with sections 1 to 7 of the 1996 Act.
§ There are a number of ways in which the contract of employment may be brought to an end. An employee may end his (or her) employment simply by giving the notice prescribed by his contract (or the minimum notice prescribed by section 86 of the 1996 Act, whichever is the greater). He is under no obligation to state his reasons for resigning and may leave once the period of notice has expired. If, on the other hand, he simply walks off the job without giving notice, he is in breach of contract and may, in theory at least, be sued for damages. In practice, few employers would consider the exercise worthwhile. If, on the other hand, an employee terminates his employment without notice, in circumstances in which he is entitled to do so by virtue of his employer 's conduct, he has been effectively dismissed and may (subject to the usual qualifying conditions) pursue a complaint of unfair 'constructive' dismissal before an employment tribunal.
§ Under the common law doctrine of frustration, a contract of employment may also be brought to an end by the death, imprisonment or prolonged illness of either party to that contract. However, in the light of the provisions of the 1996 Act, an employer would be ill-advised to invoke the doctrine of frustration when challenged to explain the 'dismissal' of a sick or injured employee absent from work for a prolonged period. On the other hand, frustration may be invoked if an employee has been sentenced to a lengthy term of imprisonment (even if he or she has lodged an appeal) (per Hare v Murphy Brothers [1974] ICR 603 (CA) and Harrington v Kent [1980] IRLR 353).
§ A contract of employment may also be terminated by the employer – either because the contract itself (being a 'limited-term contract') has expired (and is not renewed under the same contract), or for a reason related to the capability, qualifications or conduct of the employee, or if the termination in question is tantamount to a constructive dismissal. Section 98(2) of the 1996 Act allows that an employee can also be lawfully dismissed because his (or her) continued employment would be illegal, or on grounds of redundancy, or for 'some other substantial reason' of a kind such as to justify the dismissal of an employee holding the position which that employee held. Whether or not an employer acted reasonably and fairly in taking the decision to dismiss (for whatever reason) is a matter for an employment tribunal to decide.
§ Since 12 July 1994, the jurisdiction of the employment tribunals has included all breach of employment contract cases on termination of employment – except for personal injury claims, cases (outside the tribunals' normal field of expertise) relating to intellectual property, tied accommodation, obligations of confidence, and covenants in restraint of trade. It is important to stress that the jurisdiction of the employment tribunals in these circumstances is limited to cases that arise or are outstanding on the termination of an employee's contract of employment, and not otherwise. A claim for damages arising out of an alleged breach of contract by an employer must be presented within three months of the effective date of termination of the employee's contract of employment. Counter-claims must be submitted by an employer not later than six weeks from the date on which the employer receives a copy of the employee's originating application (Form IT1) from the Secretary to the Tribunals.
§ There is an upper limit of £25,000 on the amount a tribunal may award in breach of employment contract cases. A claimant seeking higher damages should do so in the civil courts (which retain concurrent jurisdiction).
Illegal contracts
§ Any employee who enters into an illegal contract of employment may find to his (or her) cost that the contract in question will be held to be void and unenforceable by the tribunals and courts. Such an employee would be denied his common law right to sue for wrongful dismissal, and would be unable to enforce his statutory employment rights including his right to claim a redundancy payment or to present a complaint of unfair dismissal (which latter rights are dependent on the existence of a valid contract of employment and a period of continuous service under that contract).
§ What then is an illegal contract? Such a contract may include an undertaking by an employer not to deduct PAYE tax or National Insurance contributions from the employee's earnings (Napier v National Business Agency Limited [1951] 2 All ER 264). However, in Lightfoot v D & J Sporting Limited [1996] IRLR 64, it was pointed out that there is a distinction between tax evasion (which is unlawful) and tax avoidance (which is perfectly legitimate). A contract is not rendered illegal by an employee's lawful efforts to minimise his tax liabilities.
§ A contract under which an employee is hired specifically to carry out illegal or immoral acts (eg, to procure prostitutes for the entertainment of his employer's business clients) will also be unenforceable (Coral Leisure Group Limited v Barnett [1981] IRLR 204), as would a contract under which an employer recruits an illegal immigrant, in contravention of the Asylum & Immigration Act 1996, or in circumstances in which the employee does not possess a valid work permit (Sharman v Hindu Temple (1991) unreported, EAT 253/90) – although the outcome in each case will depend on its particular circumstances.
§ In the Coral case referred to in the previous paragraph, a public relations executive occasionally procured prostitutes at his employer 's behest for the entertainment of his employer's business clients. The tribunal held that, although the employee had acted unlawfully in carrying out his legitimate duties, he had not been hired for that specific purpose. His contract remained valid and enforceable and he retained the right to present a complaint of unfair dismissal. Were this not the case, an HGV driver or sales representative (in less dramatic circumstances) would run the risk of invalidating his (or her) contract of employment every time he ignored a red traffic light or exceeded the speed limit in the course of carrying out his normal duties.
§ A contract of employment entered into legally at the outset may become illegal with the passage of time. This may arise if, for example, an employer decides at some later date not to deduct tax or national insurance contributions from an employee's wages. A similar situation arose in Salveson v Simmons [1994] IRLR 52, when a farm manager illegally arranged to have part of his salary paid tax-free into a business that he owned. When the farm changed hands, the new owner refused to continue this arrangement. The farm manager resigned and presented a complaint of unfair constructive dismissal. The tribunal held the tax evasion to which he had been a party had rendered his contract void, in spite of his claim that he did not know that the arrangement had been illegal. Ignorance of the law is no excuse.
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