Myth busting employment contracts: Five common misunderstandings
1. Do employers need to provide employment terms in writing?
2. So, is a section 1 statement the same as an employment contract?
There is a prescribed list of terms (really, the fundamental terms of the employment relationship) which the document must include such as the parties’ identities, employment start date and particulars of pay/benefits, working time, holiday and notice.
3. But can employment contracts be used as an alternative to section 1 statements?
Yes: a section 1 statement complies with the minimum legal formalities. It will be sufficient for some roles. Provided an employer has supplied a section 1 statement there is no legal requirement to also have a separate employment contract.
However, most employers do provide an employment contract. Where that contract incorporates the section 1 statement requirements (in writing, includes all prescribed particulars and provided on/before the employee’s first day) it is a valid alternative document.
4. Should subsequent variations of terms also be recorded in writing?
Normally, yes: any variation to a section 1 statement must be set out in a written statement called a section 4 statement (again imaginatively named as the obligation is contained in section 4 of the Employment Rights Act 1996) and provided within one month of the change taking effect.
In any event, it’s best practice to do so: see our additional comments below.
5. Are there consequences for failing to provide a section 1 statement (or employment contract)?
Potentially: if an employer doesn’t provide a section 1 statement (or valid employment contract) then an employee can file a claim with the Employment Tribunal. Compensation is capped and can only be awarded where the employee brings another claim – but don’t forget that any litigation can result in legal costs, lost management time and a potential impact on reputation and workforce relationships.
More practically, and regardless of any legal obligation, it is best practice to have original terms and any variations in writing and signed by both parties. If a term is only agreed verbally this makes it more likely for confusion to arise between the parties and, if there is a dispute, more difficult to evidence what was agreed.
So what do employers need to remember?
- Employers are legally required to provide a section 1 statement to employees and workers.
- In most cases, it is necessary and/or sensible to provide a full employment contract instead of a section 1 statement.
- Aside from any legal requirement, it is best practice to incorporate the key terms in one document, record any variations in writing and have all documents signed by both parties.
- Be aware of the potential consequences, legal and otherwise, if you don’t comply with the statutory obligations.
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