What risks do I face if I don't have a compliant or complete contract of employment?

An employment contract is the most important document between an employer and an employee. It sets out the terms of the employment including probationary period, salary, location and hours of work, holiday entitlement and notice periods to name a few. The standard employment contract can also be tailored to include additional clauses specific to the Company’s needs and requirements such as the inclusion of a home working clause or a DBS check requirement.

Under Section 1 of the Employment Rights Act an employer is required to give an employee a “written statement of particulars of employment.” For most employers, this section 1 statement will take the form of a contract of employment. The legislation sets out an extensive list of the pieces of information that should be included in the section 1 statement,  including:

• the name of the employer and employee;
• the date when the employment began;
• the employee’s working hours;
• entitlement to holiday;
• a probationary period if applicable;
• length of notice; and
• any benefits or training entitlement.

If there are any changes made to the contract of employment after it has been issued to the employee, a further written statement must be provided by the employer, outlining the changes.

If the contract does not contain all the necessary clauses or is not reviewed regularly and kept up to date to comply with the ever-changing employment law, then an employer could have a non-compliant contract and potentially face a claim in the Employment Tribunal (ET).

The risks of not providing an employee a Contract of Employment are as follows:

Protection for the employer and employee

A compliant contract of employment provides protection and certainty to both the employer and employee by making clear each party’s rights and obligations. If a dispute arises between the parties often recourse is first sought in the employment contract. It is therefore important that protections for employers are drafted carefully, as any ambiguity will be interpreted in favour of the employee.

If the contract is silent as to certain terms, statutory provisions will apply, which may be unfavourable to the employer. For example, if the contract does not state a notice period, the employee will only be required to give one week’s notice to terminate their employment, regardless of how many years an employee has worked for the employer. Such a short notice period may be detrimental to the employer who may be left dealing with a quick loss of an experienced employee and not have enough time to hire someone else.

Disciplinary action and penalisation by the Employment Tribunal

Employers who fail to provide their employees with a compliant contract of employment may also face consequences in the ET.

When an employee has a successful substantive claim in the tribunal such as unfair dismissal, discrimination, or breach of contract, and their employer has also failed to provide them with a section 1 statement, the employee may make an additional claim in respect of this failure and be awarded an additional amount. The minimum amount a tribunal must award for a successful claim is two weeks’ pay, subject to the statutory cap on a week’s pay. This may be increased to four weeks’ pay if the tribunal considers it “just and equitable in all the circumstances”.

Employers must make sure that their employment contracts are routinely reviewed and updated to meet with legal requirements and to safeguard their Company. Undoubtedly, having a valid employment contract gives both businesses and employees clarity and assurance.

In the event of a dispute, the employment contract should serve as the first point of reference and provide answers to any queries the employee may have on the conditions of their employment.

If you have concerns or questions about your employment contracts or are interested in reviewing your employment documents, please contact our Employment Team by emailing employment@warnegoodman.co.uk or calling 023 8071 7717.