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Drawing up a contract of employment.

Introduction

This checklist details the steps involved in drawing up a contract of employment. It is primarily aimed at new contracts, but many points will also be useful to those who have to modify an existing contract. As with any legal document it is essential that advice is sought before a contract is put into effect.

Legislation does not require that an organisation has to have a formal written contract with its employees, but such a contract can prevent disputes over terms and conditions at a later date, whereas oral agreements can often be called into question. Well-drafted contracts of employment enable employees to be clear about their rights, can help to avoid costs incurred by disputes over terms and conditions, and ensure that the employer can justifiably terminate employment if an employee does not meet the contract's requirements.

National Occupational Standards for Management and Leadership

This checklist has relevance to the following standards:

B: Providing direction, unit 8

D: Working with people, unit 3

Definition

A contract of employment is a legally enforceable agreement, either oral or written, between an employer and employee that defines terms and conditions to which both parties have agreed and must adhere. Whilst not all parts of the contract have to be in writing, the Employment Rights Act 1996, amended under the Employment Act 2002, requires all employers (ie regardless of size of organisation) to provide employees, within 2 calendar months of starting work, with a written statement of the main terms and conditions of employment. Some standard information must be included in the written statement. Extra clauses can be added.

Action checklist

1. Analyse the job to be contracted

Look at the job description if there is one, as this will provide information on what the employee's job entails. Clauses in the contract must allow the employee to carry out his or her duties without restrictions. The post may require the person to have a professional qualification--would the person be allowed to continue in the role if the awarding body were to withdraw their professional status?

2. Consider future plans and objectives

Would you expect the size of the workforce to be reduced in the future? If so, a permanent contract may not be appropriate. A particular job title may not be suitable if you have to transfer the employee to a different department; a general title, such as 'Admin Officer' may offer more scope for change. If you have plans to open further sites throughout the country, you may need to incorporate a mobility clause to cater for employees who will have to work there from time to time. By including clauses such as mobility, the organisation can ensure that its workforce will adapt to its future needs and developments.

3. Look back at problems

The organisation may have had problems with contracts of employment in the past. This could have been due to the nature of the work the organisation does, for example, or an employee could have left taking some customers with them in the process, or have created some intellectual property whose ownership is disputed, or have resisted relocation because a contractual statement was lacking.

4. Gather information and confer with colleagues

Try to obtain some sample contracts of employment used in organisations in the same field, and get hold of literature relating to the current requirements of personnel legislation. Colleagues can offer good advice over what has and has not worked in the past, both in the current organisation and in others where they may have worked. Trade union representatives can point out contentious issues that may arise.

If your organisation has a legal department, consult it. If not, be prepared to go outside; costs incurred here could well save in the long term.

5. Incorporate written statement

The Employment Rights Act 1996, S. 6, requires a written statement of employment containing main terms and conditions to be given to employees within two months of the start of their employment. This document is evidence of the employment contract, but the actual contract exists in the agreement between the employer and employee on the terms of employment.

The particulars that must be stated in the document are:

* the employer's and employee's names

* the date the employment started (and will end if fixed term)

* the rate of pay and frequency of payment

* terms and conditions relating to hours of work, holidays, holiday pay, sickness leave and sick pay, and pensions and pension schemes

* the notice required to be given by both employee and employer to terminate employment

* any collective agreements which affect the terms and conditions of employment, for example, those negotiated by a trade union (even if the employee is not a member)

* the job title

* discipline and grievance procedure, or where these can be found in documented form

* details of the place(s) of work

* details of collective agreements (eg redundancy agreements) that affect terms and conditions of employment

* details of overseas work requirements

* the length of time and currency in which remuneration will be made if the employee is required to work abroad for a period of more than one month.

In cases where another document can be referred to, such as a disciplinary procedure, a staff handbook can be used. This document must be accessible; a copy should be given to the employee as part of their induction.

6. Consider possible extra clauses

There are a number of clauses that may be included in a contract of employment, depending on the nature of the job and the needs of the organisation.

Relocation expenses--it may be appropriate to include a clause which requires an employee to repay any relocation expenses incurred if they leave within a certain period.

Uniform or clothing--where there is a standard dress code or protective clothing is needed, make this clear in the contract. Check on sex discrimination legislation over differences between male and female appearance.

Qualifications--if the jobholder is required to obtain or hold a certain qualification by a certain date (educational or professional), define which one and the consequences of failing to have it. Where the employee is funded to obtain a qualification, they may be required to repay the cost if they terminate their employment within a certain period.

Driving licence--employment may be terminated if the employee loses his or her licence.

Mobility--where the employee is expected to work at different bases, make it clear.

Travel--in many jobs travel is necessary to meet customers or clients, so you may need to include a clause to cover this. Clerical workers are usually only expected to be as mobile as far as is reasonably possible on a daily commuting basis, whereas managers can be expected to travel as far as the business requires.

Probation--if a probationary period is used for new employees then its length should be given, with the ability to terminate the contract at the end or an earlier date, or to extend the length of the probation. Include a statement which says that permanent employment will be confirmed in writing, subject to the probationary period being completed satisfactorily.

Retirement--it should be made clear if the contract is terminated when the employee reaches the organisation's set retirement age.

Restraints--in some circumstances it is possible to restrain the activities of an employee once employment has terminated, through the use of clauses known as restrictive covenants. An example would be the use of trade secrets acquired while working for an organisation. Expert advice is essential as the employer is required by law to show that the restraining clauses are not more than is needed to protect their interests.

7. Produce a draft

Have the contract of employment checked over, preferably by someone with legal expertise. Ensure that all terms are clear and unambiguous, and do not restrict the employee from carrying out or further developing the role.

8. Review the contract

The employee should be made aware that signing the contract is tantamount to a legally binding contract and therefore subject to the law of the land.

At a later date, ask the employee if there is something that they think needs changing, although the employer is not obliged to make suggested changes. Sometimes a term that permits an employer to vary a contract is included, but the right to vary without an employee's consent is quite limited. Problems that occur elsewhere in the organisation may affect contracts wholesale, so be aware. Keep an eye on the personnel literature for court cases and changes in legislation which may affect current or future contracts.

How not to draw up a contract of employment

Don't:

* leave yourself with no time to examine the job and the future of the role

* begin writing without looking at the law relating to contracts of employment

* use difficult or ambiguous wording in the contract

* forget to draw on the experiences of your colleagues

* cut corners--pay for legal advice if it is not available internally

* try to restrain the employee too much--allow for some flexibility in the contract.

Additional resources

Books

Contracts of employment: a legal guide London: Labour Research Department, 2005

Producing a written statement London: ACAS, 2004

Safe employment contracts Ashford: Indicator, 2004

Contracts of employment: legal essentials, 3rd ed, London: Chartered Institute of Personnel and Development, 2004

This is a selection of books available for loan to members from the Management Information Centre. More information at: www.managers.org.uk/mic

Organisations

Advisory, Conciliation and Arbitration Service (ACAS)

Brandon House, 180 Borough High Street, London, SE1 1LW

Tel: 020 7210 3613 www.acas.org.uk
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Title Annotation:Checklist 097
Publication:Chartered Management Institute: Checklists: Small Business
Geographic Code:4EUUK
Date:Mar 1, 2006
Words:1589
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