The People Bulletin

Terms of employment can be agreed expressly, implied or incorporated by statute. It’s important that employers are aware of what forms the basis of their relationship with their staff, what their obligations are and what rights their employees’ have.

This article will discuss:

• the various sources from which employment rights may derive and provide examples of key implied terms;
• the requirement for clear main terms of employment for all employees;
• how employment terms can be varied; and
• notice periods.

Sources of employment rights

Employment rights come from many sources and employers cannot rely solely on the written contract. Terms of employment can be written, oral, implied (by common law or statute) or a blend of all three. When determining an employee’s rights the courts may also look at other sources to determine what those rights are, including the original job advertisement, the offer letter and employee handbooks.

As most implied terms weigh against employers they must make themselves aware of the implied rights of staff; these commonly form the basis of constructive dismissal claims.

Common implied terms affecting workers include, but are not limited to:

• duty of confidentiality during employment;
• a duty to act in the best interests of the company (usually for more senior employees);
• a duty not to misuse the employer’s property;
• duty to be mobile i.e. work within a reasonable commuting distance;
• duty to exercise reasonable care and skill in performing their duties; and
• a duty not to disrupt the employer’s business.

Common implied terms affecting employers include, but are not limited to:

• without express agreement, a duty to give reasonable notice;
• duty to take reasonable care of the health and safety of employees and provide a suitable working environment;
• a duty to advise employees of their rights and benefits; and
• duty of mutual trust and confidence – this covers a very wide number of issues and circumstances.

Statement of main terms

Employers must provide all staff, within two months of their employment commencing, a written statement containing the main terms of their employment. This should clearly set out the following:

• names of the employer and employee;
• start date and the date of continuous service;
• place of work and hours;
• salary;
• holiday entitlement;
• sickness and absence policy;
• termination and notice periods; and
• disciplinary and grievance procedures.

Employers who do not provide this information (or do not do so on time) may face a financial penalty of up to four weeks’ pay. However, this is not a freestanding right, and the employee must also be bringing another claim, for example for unfair dismissal.

Variations to terms of employment

During the course of employment, an individual’s terms of employment may change, for example:

• due to developments within a business, for example, a workplace relocation;
• due to change in the employee’s circumstances, for example, they are promoted; or
• through a change to working time practises in an effort to cut costs and possibly avoid redundancies.

Whilst some variations, such as pay rises or promotions, are not typically contentious, other variations often are. An example would include where a reduction in working time is proposed from a five-day to a three-day week in an effort to avoid redundancies. Employers proposing such variations must ensure they follow the correct procedure to ensure such changes are legally binding and implemented correctly.

Firstly, the employer should check whether the employment contract contains an express variation clause. Where it does, they should then ask:

• does that variation clause allow for the proposed change?

The inclusion of a variation clause does not give an employer an unfettered right to impose any changes and any ambiguity in a variation clause will be construed against the employer. In addition, where the variation clause contains general wording, usually this allows for minor amendments to be made that do not cause the employee any detriment, and do not assist where an employer is seeking more significant changes. In such circumstances the employer can only achieve the variation by three means:

1. by express agreement to the new terms (either from the employee directly or through collective agreement); or
2. unilaterally imposing the change and then using the employee’s conduct (i.e. continuing to work under the new conditions for a reasonable period and raising no objection to the new terms) to establish implied agreement to the new terms; or
3. terminating the existing contract of employment and then offering continued employment on the new terms.

Which method is more appropriate will depend, of course, on the change being proposed but also on how employers present and ’sell’ the change to their employees.

Which ever route is chosen, it will not be totally risk-free. For example, if a pay reduction is unilaterally imposed there may still be a claim, despite the employee’s continued working, that they are working under protest and that the employer has breached their contract. A claim for constructive dismissal could follow. Alternatively, the employee may simply refuse to work under the new terms.

In addition, if terminating the existing contract and re-engaging on new terms, the employer must ensure the following, to avoid claims for unfair and wrongful dismissal:

• the correct notice period is given;
• there is a fair reason for the dismissal; and
• it was reasonable for the employer to dismiss the employee following a failure to reach an agreement to the variation(s).

Notice periods

Employers must ensure that they comply with their notice period obligations. Statute implies minimum notice periods into every contract of employment. These state that:

• where an employee is employed continuously for at least one month but less than two years they are entitled to a minimum notice period of one week; and
• employees with two years’ continuous employment or more are entitled to one week’s notice for each complete year, up to a maximum of 12 weeks’ notice after 12 years.

An employer cannot agree in the contract to give less than the statutory minimum. Longer notice period however can be agreed and employers should consider whether that is appropriate. In addition, employers should consider whether to include a payment in lieu of notice (PILON) provision. Failure to provide the correct notice (or, if applicable, correctly comply with a PILON clause) may result in a costly wrongful dismissal claim. Where a contract is silent on notice the courts may imply a reasonable period, which could be up to six months for a director.

Summary of key points

• DO make the contract clear and ensure minimum terms are covered.
• DO identify whether additional terms are required i.e. a confidentiality clause. intellectual property clause, non-compete on termination clause etc.
• DO consider whether a payment in lieu clause is required.
• DO be aware of the options where a variation to an employee’s terms is proposed – consider which method is most appropriate in the circumstances.
• DON’T restrict flexibility – include a variation clause.
• DON’T forget to check the employee’s entitlement to notice.
• DON’T assume an employee’s rights are only contained in their contract - employees have numerous implied rights.