Employment contracts: are they worth the paper they are written on?

Employment contracts: are they worth the paper they are written on?

Les Potton Chartered FCIPD ACII, director and managing consultant, Target HR and Training Ltd

Les introduced the session by putting up the types of contracts that the session was going to cover:

  • Permanent employee (full and part time)
  • Fixed term employee (full and part time) 
  • Zero hours contract employee
  •  Casual worker
  •  Agency worker
  •  Self-employed contractor
  •  Limited company contractor
  • Umbrella company contractor

Objectives of the session:

  •  To know what employment and worker statuses exist.
  • To gain a basic understanding of the differences in the legal treatment and operation of each status.

A true or false quiz took place to test the delegates’ knowledge on the legality around contracts which added an interactive feel to the session.

Employment contracts:

  •  Must be provided within 2 months of starting work, and their content is governed by the Employment Rights Act.
  • Reality overrides what is written and changes can happen via “custom and practice”.
  •  Cannot be varied without agreement.
  •  If critical to vary, you must consult and then dismiss for SOSR (“some other substantial reason”). and offer re- engagement on the new terms. To do this you must be able to show a tribunal that the business case justified the drastic action.

Fixed term contracts:

  • These operate for a finite period and have a specified end date. Non-renewal of the contract is a“dismissal”, and the dismissal must be for one of the “fair” reasons in the Employment Rights Act.
  •  It is important to note that the employee has unfair dismissal rights and the right to a redundancy payment if subsequent contracts exceed 2 years.
  • A fixed term worker must be treated in the same way as a permanent employee in most cases.

Zero hours contracts:

  • No legal definition exists for these – they can be permanent or fixed term, and no minimum hours of work are required. The expectation is that shifts will be offered and the employee is obliged to accept these subject to the contract and working time regulations.
  • If there is mutuality of obligation to offer and accept work, then full employment rights are held.
  •  From 2016, the contract cannot have an exclusivity clause prohibiting the employee from working for other employers.

Casual workers:

  • No employment contract and limited worker rights. Sometimes described as zero hour contract, but this can be misleading.
  •   A key distinction here is that there is no “mutuality of obligation” – employers are not obliged to offer work and casual workers can decline any offer. If the work is truly casual, then there is no need to dismiss the worker, you simply stop using them, but if regular patterns of work are offered and accepted, then an employment contract can become implied.

Agency workers (“temps”):

  •  No employment contract with the end client, these are usually employed by the agency and then “leased” to the client for a fee.
  •  No employment rights with the client, and therefore the client can decide to end the relationship in line with the commercial contract, without having to go through disciplinary etc.
  •  But, if the worker is with the same client for 12 weeks, they are entitled to the same basic working rights (pay and conditions) as the client’s employees doing similar work.

Self employed contractor:

  •  No employment contract but a“contract for services” may exist which is a business/commercial contract.
  •  The contractor runs their own business as a sole trader, invoices the customer and is free to work for other clients and may substitute other persons to carry out the service.

Limited company or “umbrella”:

  • Similar commercial arrangement to a self-employed contractor e.g.  “contract for services”.
  •  The individual is an employee (usually director) of their own limited company or they work for an umbrella company.
  • The limited or umbrella company transacts with the customer and completes and accounts for PAYE tax for the individual.