Protection in Print – section 1 statements and employment contracts; Why would you not?
The requirement to provide an employee with information about certain terms of their employment has been around since 1963. Despite that, we hear every day of situations where no employment contract exists.
It seems to be a common misconception that a formal written employment contract is not necessary. Whilst an employment contract can be verbal, setting out the terms of the employment in writing is the only way to ensure they are clear, understood and most importantly, valid and enforceable. Further, a written contract gives the prospective employee ALL information they need at the beginning of the employment, thereby reducing the risk of disputes arising during the employment relationship and afterwards.
Employment contracts are essentially agreements whereby both parties accept what action will be taken in certain circumstances. Where there is no agreement in place, you, as the employer, could be at risk of claims for breach of an employee’s rights. Where there is only a verbal agreement in place, this could lead to a “he said, she said” situation, which could escalate to costly litigation whereby a Judge sides with an employee under the ‘Contra Proferentem’ rule.
In addition to the financial implications of having no employment contract, you could be faced with employees leaving without warning (affecting business operations) or stuck with a nuisance employee for longer than desired. Having a signed contract in place means that the employee expressly accepts how you intend to deal with certain situations and cannot successfully claim otherwise at a later date.
The requirement to provide prospective employees with details about the terms of their employment was revisited under the Good Work Plan. This highlighted the impact of uncertainty in the employment relationship and the issues this creates for both parties. The impact was such that the Government felt a penalty should be imposed for non-compliance with the requirement. As of 6th April 2020, employers who have not provided employees with a statement of terms on the first day of work could be ordered to pay up to a month’s wage as compensation to affected employees.
The information to be provided to employees in a statement of terms is set out in section 1 of the Employment Rights Act 1996. However, these basic terms may not go far enough in outlining every circumstance that could arise in an employment relationship. For example, the current legislation does not require an employer to state whether they will pay an employee pay in lieu of their notice (PILON) period (PILON). Nor does it require an employer to advise prospective employees concerning what actions may constitute gross misconduct.
PILON clauses and gross misconduct clauses are two beneficial terms to be included in employment contracts. The first allows you to terminate employment immediately whilst simultaneously removing the employee from the workplace and their right to bring a breach of contract claim. The second allows your business to make a decision regarding summary dismissal relatively easily, thereby reducing the risk of unfair/wrongful dismissal claims.
Given that these clauses do not feature in section 1 ERA 1996, employers may not have considered the benefit of such clauses to their businesses. Employers often need to tailor particular terms to their business needs, and this is the importance of ensuring you have in place or seek to have a formal contract of employment drafted.
It is crucial for employers to realise that a statement given to an employee under section 1 of ERA 1996 will not amount to a contract. Unless you have a contract in place, it is a real possibility that a dispute will arise about terms.
