This is an introduction to the key aspects of UK employment law, covering:
- Is there a contract of employment?
- What are the terms of the contract of employment?
- Implied terms
It is not intended to be the definitive guide; if you have a specific query you should raise it with your legal adviser.
1. Is there a contract of employment?
In most cases this is very easy. Is there a signed document with an employer and an employee that sets out the main details of their relationship?
But, as discussed below:
- The terms of the contract are also covered by other laws
- A signed document is not necessarily an employment contract
- There will still be an employment contract even if there is nothing in writing.
Employed or self-employed?
We are concerned here only with an employment contract. We are not looking at contracts for engaging the services of self-employed people. This is a key difference, and from it there will be many legal implications.
i. Tax and National Insurance (NI) treatment is very different indeed.
The employer is required to deduct tax under PAYE and collect NI contributions for both the employee and employer. This is expensive.
If the worker is self-employed it is his responsibility to pay tax and NI.
The UK economy relies on an increasing proportion of temporary workers and freelancers. This issue of whether or not a worker is an employee will become more important.
ii) Employees enjoy greater employment law protection rights (and responsibilities).
This covers the right not to be unfairly dismissed, health and safety at work regulations.
You engage a cleaner to visit your house twice a week, or engage a childminder to look after your kids while you go to work. Is this an employment contract?
In most case there will be nothing in writing, but as we have seen this will not necessarily prevent an employment contract from arising.
Does it matter?
The short answer is yes. In particular, if you are an employer it is your responsibility to pay the employee's tax and NI.
In our example, if you give your cleaner/babyminder, say, £100 in cash per week, you could find yourself having to pay upwards of an additional £50 in tax and NI if they are your employees rather than outside contractors. And you cannot recover this money from them.
So who decides if the worker is an employee or contractor?
There are well-established tests which would apply. They are outline rules, but in reality they can be confusing. In brief they cover:
Essentially this test looks at whether the worker is in business on his own account, or whether he is working for the employer as one of its staff.
Who decides what, when and how the worker does the task for which he is paid? Can the 'employer' control and direct the worker?
In today's highly skilled workforce this test is less important. A highly trained IT consultant may be 'controlled' by his line manager as to when he needs to be in the office, when he can take holidays etc but will rarely be told exactly how to exercise technical judgement.
If the worker is an integral part of the business he is more likely to be an employee. If his work is more an accessory to the main business then he may be an independent contractor.
iii) Multiple test
The real test is to look at the overall picture.
A cement company insisted that the drivers who carried its goods:
i) Wore company uniforms
ii) Allowed the company to use their lorries when required
iii) Obeyed orders from foreman
But the drivers also:
i) Maintained the lorries at their expense
ii) Paid all running costs
iii) Used substitute drivers when necessary
Were the drivers employees or independent contractors?
In this case (1968) they were held to be independent contractors.
Even if there is no dispute between 'employer' and 'employee' it is still open to the Inland Revenue to claim the worker is an employee and recover the tax and NI.
If your cleaner/childminder regularly works for you, and there is no replacement when they are on holiday/sick etc then you may find you are an employer. If you are ordered to pay the tax and NI you will not have the right to ask for this from the employee.
A mistake could cost you a lot of cash, especially as the Inland Revenue can look back for 6 years lost PAYE and NI.
There are a few other consequences:
Health and safety at work: Who is responsible for the insurance if there is an accident? If you are an employer then you will be more likely to be held liable if the cleaner is electrocuted by a faulty vacuum machine. If the cleaner were self-employed then the primary responsibility for checking the equipment would rest with them and not you.
Professional indemnity: If the worker makes a mistake, who is liable? In one case a surgeon negligently performed an operation. The patient sued the hospital but the court decided that the surgeon was not an employee, so the patient could only sue the surgeon directly.
To reduce, but not eliminate, the risks:
2. What are the terms of the contract of employment?
The employment contract is governed by many sources of law.
The written contract
This is usually the most important source. As a very general comment, parties can agree whatever they like. But there are a number of laws which will still overrule whatever the written contract states.
These are discussed below.
But I don't have a contract
Yes you do. You may not have signed a written contract, but there will be a legally enforceable employment contract.
If there is nothing in writing the courts and employment tribunals will imply the terms. The tribunals tend to decide in favour of an employee in the event of a dispute, so it is in the employer's interest to ensure that a written contract is produced and signed by the employee at the very beginning.
All employers are required to provide all employees with a Written Statement of Particulars of Employment within 13 weeks of employment starting. This is not the contract (which may have additional terms) but it should cover the key terms, namely:
- Names of employer and employee
- Date employment began
- Rates and dates of pay
- Hours (and whether overtime is included)
- Holiday entitlement and holiday pay
- Sick Pay
- Pension scheme details
- How much notice employer/ee need to give
- If job is not permanent, date when expected to end
- Place of work
- Disciplinary and grievance procedures
Again, if the employer hasn't produced such a statement, then it will be at a disadvantage in front of the tribunal.
Furthermore, if an employee is dismissed for asking for the Written Statement then his dismissal will be automatically unfair.
In practice it is almost always in everyone's interests to have a written contract. Any dispute over the terms, either during or after the employment has finished, will almost always create bad feeling.
Lawyers thrive on ambiguity. Implied terms are notoriously difficult, and therefore expensive in legal fees, to agree. A written contract removes a lot of the doubt and uncertainty. Everyone at least has the certainty of knowing where they stand, and can plan accordingly.
As an employee, if you are not given a written contract you should ask for one and keep chasing until it appears. You will save many nights' lost sleep if you do.
UK government has introduced hundreds of laws over the years, which have an impact on the employment contract.
These include protection against unfair dismissal, minimum wage, redundancy protection, race discrimination, health and safety at work, trade union laws and disputes etc, and usually override anything in the written employment contract.
Perhaps the greatest agent for change in UK employment law in recent years has come through European law. The details are too complex for this overview, but the European Union has produced many laws that affect many aspects of employment law in the UK.
UK courts and European courts are used to interpret employment laws. Their decisions are binding on other cases that come before the courts.
Employment law tribunals also have a role. Tribunals are often the place where most cases are heard. Their decisions are much less binding on other tribunals.
So, there are many sources of employment law. The written contract is usually the starting point of any dispute, though it is rarely the only source of law that will apply.
3. Implied terms
The law implies various duties for both the employer and employee into all contracts of employment. These can be critically important, especially when claiming dismissal.
Duties of an employer:
- To pay the employee
- To provide work
- To treat the employee with mutual trust and confidence
- To take reasonable care for the safety of the employee
- To deal promptly with grievances
- To reimburse the employee for any expenses properly incurred while at work
- To be ready and willing to work
- To use reasonable skill at work
- To follow reasonable and lawful orders
- To take care of the employer's property
- To act in good faith
The duty of mutual trust and confidence crops up all the time in disputes. Employers and employees must be extremely careful in using such words, especially in any disagreement or review. An employer who says "I find it hard to trust you" could find himself on the wrong end of a claim for constructive dismissal, a claim for damages and possibly an argument that the employee can leave immediately.
No matter how much the lack of trust may be substantiated, avoid using such words without taking very careful legal advice. If the words are used against you, write down exactly what was said and get the other side to confirm, expressly, that those are the words they said.
Employers can and do sue employees for breach of duty to use reasonable care. Often this is used as a threat to stop an employee suing for damages and brought up in final negotiations. For example, the employer could say: "We sacked you immediately for a bad job. If you sue us for unfair dismissal we will sue you for breach of your duty to use reasonable skill."
Duty to act in good faith can go a long way and cover many things. Therefore it can be argued in a lot of cases. It has been held to cover:
- Not to disrupt employers business interests
- To be honest
- Not to compete with the employer
- Not to isclose confidential information
Implied duties may seem obvious, but they are also very commonly used in employment disputes.
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