Contracts of employment

Expert advisers from Croner, the employment law and HR specialists, answer your questions on contracts of employment and issues you may encounter when working in new care models.

What is a contract of employment?

A contract of employment is regulated by the same basic law that governs all other contracts. Its purpose is to set out the rights, duties and obligations of each party. For an employment contract to exist there must be:

• an obligation on the employer to provide work and an obligation on the employee to carry out work
• an obligation on the employee to provide his or her services personally
• a reasonable degree of control and direction over the employee’s work.

It’s worth pointing out that a contract of employment doesn’t have to be written. It comes into existence as soon as the following four elements are present:

1. There is offer and acceptance.
2. There is an intention to create legal relations.
3. The terms agreed by the parties are sufficiently certain to be enforceable.
4. The agreement is supported by “consideration”, ie benefits to each party.

How often should you update your contracts of employment?

Contracts of employment often cover a wider variety of documents and terms than you might think. All employees with more than one month’s service are legally entitled to a document containing their main terms of employment, but this is not the sole form of an employment contract. These contracts contain all written, verbal and implied terms of the employment relationship, so it is often far more complex than a simple document.

Generally, contracts of employment should be updated when any terms or conditions contained within are changed. You can set a date or time period within contracts when they will be reviewed, to make sure that they contain the most accurate, up-to-date requirements.

When updating, you should make employees aware that this is simply what you are doing; not changing, altering or removing any terms. If the update is creating a change that is detrimental to the employees, putting them in a worse position, it is prudent to consult with the employees. This is the safest route to change terms and can protect disgruntled employees from making tribunal claims. The consultation requirements will be based on how many employees are affected by the contractual change. You could consider offering a one-off incentive, such as a one-off payment or an extra day’s holiday, to sweeten the deal and make the consultation process smoother.

It is best practice to reissue the updated contracts to your employees and receive a new signed copy, showing their agreement. This is so these contracts can be used as evidence in any subsequent action, such as disciplinary procedures or even tribunal actions.

You should be aware that contracts of employment can be updated through custom and practice, ie, what normally takes place within your business and has been carried out over a period of time. For example, your contracts may say 28 days’ paid annual leave but for three years all employees have been paid for 29. This is likely to have become custom and practice, therefore amending your contracts without any prior thought or action.

If you are considering purchasing/taking over a practice, what are the HR implications?

The first issue you need to consider when buying a business is whether the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) will apply to your specific situation. Commonly, the Regulations apply when a business is bought (other than by share transfer) and where services are contracted in/out or there is a change of contractor.

Assuming the TUPE Regulations do apply, a mindful employer will be aware of their responsibilities. The TUPE regulations were introduced to maintain employees’ continuity of employment and enable them to enjoy the same terms and conditions under the new employer as under the old one when a business changes hands.

You will automatically inherit the employees of the ‘old’ employer as they transfer to your employment on the date of the transfer. You will also inherit outstanding employee liabilities incurred by the transferor (the old employer). It may therefore be wise to negotiate appropriate indemnities in the commercial contract between you and the transferor.

The transferring employees will retain their existing terms and conditions of employment, which may well be different from your existing staff. Many employers wish to harmonise the terms and conditions across the board. However, you need to be aware that variations to terms and conditions, where the sole or principal reason for the variation is the transfer itself, are likely to be deemed void if challenged.

The Regulations do not, however, prohibit dismissals or a variation to terms and conditions in the circumstances of a transfer where there is an economic, technical or organisational reason for your actions, which entails changes in numbers or job functions of the workforce, such as redundancies. Fair procedures must still be followed.

Continuity of employment is preserved for employees who transfer over to you. This is important to remember because some employment rights are dependent upon the employee having accrued a prescribed amount of service, eg, unfair dismissal, statutory redundancy pay. Therefore, when you are calculating an employee’s length of service for these, or any other purposes, you should look back to the date their continuous service began with the transferor, rather than the date that you took over.

What is a TUPE transfer?

When one business or part of a business transfers to another person, the law provides protection to employees’ contracts of employment under the Transfer of Undertakings (Protection of Employment) Regulations 2006. A TUPE transfer can affect any business, whether it is a small or large, public or private employer.

A TUPE transfer can constitute of a business buying another business, merging two businesses to create a new one, or a service provision change. For example, TUPE is likely to apply if the same work is carried out by the same workers, on the same premises with the same equipment, but under a new employer with a different identity. Service provision changes occur when a function of the business is contracted out, a new contractor takes over or it is brought in-house from a contractor.

TUPE does not apply if the service provision change only affects the provision of goods and no services, such as food suppliers for a restaurant. Further to that, TUPE does not apply if a qualifying service provision change will only last during a single event or a short-term period.

When deciding which employees transfer over, the business must identify an organised grouping of employees. If an employee has a split role between a function that transfers and one that remains with the previous employer, then an assessment will need to be made on where he is assigned.

TUPE protection means that the employee’s employment is protected and so the employee cannot be dismissed purely because the transfer has happened. An employee’s terms and conditions of employment also transfer over to the new employer, and are protected from change if the only reason behind the change is the transfer itself. This includes taking terms out of, as well as putting new terms in, the contract. An employee cannot sign away his TUPE protection rights, meaning that even if the employer and employee agree on a change, it will not be enforceable if challenged at tribunal unless there is an economic, technical or organisational (ETO) reason entailing changes in the workforce.

When employees transfer, their length of continuous employment and accrued annual leave remains unaltered, as employment is not broken up. Along with these, any other contractual provisions transfer over to the new employer, for example pensions, overtime pay, sick leave and pay, disciplinary and grievance procedures and records. If any collective agreements have been made between the old employer and the transferring employees, then the new employer is also bound by them.

A TUPE process contains many complicated aspects and clients should always seek advice when either selling or buying a company, or winning/losing a contract.

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