Risks of not having contracts of employment in place

What are the risks of not having employment contracts with your workers?

A contract of employment is an agreement that exists between an employer and employee, and sets out terms such as employment rights, responsibilities and duties.

A verbal contract will automatically come into existence when a person accepts a job, but written contracts of employment will help businesses to protect themselves and reduce the risk of disputes or claims being pursued against them. While some believe that they can achieve greater flexibility without such contractual documents, this can in fact cause them serious difficulties further down the line when perhaps the relationship breaks down.

Pitfalls of ignoring your legal responsibility

In the UK, an employer is legally required to provide employees with a written statement of their terms and conditions, within the first two months of their start date.

While this is not a contract of employment, it can act as a summary of the information contained in the contractual document. It should outline essential terms and conditions, such as rate of pay, working hours, holiday entitlement and a brief job description as well as information on collective agreements, pensions and notice periods.

By failing to provide these statements, employers could face complications such as:

1. Employment Tribunals

Well known for being disruptive and costly for businesses, an employee can choose to take a concern over having not been given a written contract before an Employment Tribunal in order to obtain confirmation regarding the terms and conditions of their employment.

While Employment Tribunals are time-consuming and expensive for all companies, the results can be even more devastating for small businesses if an award of damages has to be paid to the employee.

2. Penalties

If an employer fails to fulfil their legal requirement to provide an employee with a written statement, an Employment Tribunal can penalise them for their non-compliance. The employee will be awarded between two to four weeks pay, capped at £450 a week. If a written statement has not been provided because of an exceptional circumstance, a penalty may not have to be paid.

Drawbacks of having basic written statements

While providing employees with a basic written statement is the bare minimum a business is legally required to do, it is recommended that employers also have comprehensive contracts of employment in place.

This will usually contain the terms and conditions included within the written statement as well as additional clauses for other provisions such as:

• Confidentiality;
• Intellectual property;
• Restrictive covenants;
• Contractual sick pay;
• Terms and condition changes; and
• Garden leave.

Employers can also choose to include information on their policies for computer and mobile phone use, smoking, outside interests, additional employment and expenses.

A clear and detailed contract of employment that outlines exactly what you expect from employees can help to safeguard your financial and business interests. With increased control over the terms and conditions, you can also reduce the possibility of disputes or claims being brought against your organisation. It is recommended that you regularly review and update these contracts, particularly when, for example, an employee has been promoted or your business has developed, in order for your business to remain up-to-date and properly protected from harm.

Davis Blank Furniss is a full service legal firm with solicitors specialising in employment law. Experienced in providing valuable advice and assistance to both employers and employees in need of legal support, the team can help with issues ranging from redundancies and dismissals to HR policies and procedures.

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