What is a contract of Employment?

What a contract of employment is, the procedures an employer should go though to put one in place and the effects of not doing so.

A contract is a legally enforceable agreement. X makes an offer to Y setting out intended terms and conditions. Y accepts that offer. At the point of acceptance, a contract is formed.

Alternatively, Y may suggest amendments and return the offer to X. The amended terms are now the offer, and if X accepts then a contract is formed. That is how all contracts work; the 'Contract of employment' (also known as an 'Employment agreement') is no exception.

Most contracts can be either verbal or in writing. Again, an employment contract is no exception.

To illustrate this, let's imagine a very simple employment contract. You own a bicycle shop. Until recently you've been running it singlehandedly, from buying and repairing the bikes to serving customers. You're now busier so you decide to take on a mechanic. You happen to be having a drink with a friend who tells you she's a good bicycle mechanic. You discuss payment and agree on £15/hour. You then agree that she'll work each day for 3 hours, and she can choose which hours, and she'll start the following day. "Bye for now – see you tomorrow", you say as you leave the pub.

That's probably enough detail to form an employment contract. In practice, most written employment contracts have significantly more detail. For example, they'll cover annual leave, notice periods and duties and refer to an employee handbook. As minimum annual leave and notice periods are covered by legislation, they will be 'implied' into the contract in any event. This agreement is enough to inform the parties what's expected of them.

We'd recommend that you write down the contract and record all of the terms so that both parties know their rights and obligations. However, by law, when you both finalise the terms of the agreement you have an enforceable employment contract. It's also important to note that if you reach a verbal agreement of this sort and then later on record it in writing, if there's any discrepancy between the verbal agreement and its written record the earlier agreement will normally prevail.

Start your contract of employment now

The MyLawyer contract of employment template is very comprehensive and can be used for part-time and full-time employees. It provides the legal minimum for compliance with the law plus more, including clauses designed to protect a business, such as the specification of duties and responsibilities to the employer, confidentiality, restrictive covenants, garden leave, option to pay notice in lieu, protection of intellectual property, return of business property and data protection. Furthermore, our 'Contract of employment' covers other aspects of an employee/employer arrangement, such as salary, place of work (home or office, for example), the number of days a week employees will be required to work, holiday entitlement, sick pay, share option and pension schemes, private medical insurance, grievance procedure and notice of termination.

Used in conjunction with our 'Employee handbook', our 'Contract of employment' and supporting law guide gives you the tools you need to ensure you are complying with employment law, protecting your business from the costs of employment tribunals.

The information on this page applies to England and Wales only.

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