This part of the chapter divides into six subsections. The first distinguishes employment contracts from commercial contracts; this is followed by a brief discussion of contract theory. The third subsection examines the effects of the common law on employment contracts; this is followed by a discussion of different types of employment contracts. The fifth subsection discusses terms and conditions of employment contracts, and finally statutory rights that relate to employment contracts are examined in some detail.
In order to explain the concept of contract, it is useful to distinguish between commercial contracts and employment contracts, the area of our particular focus. Commercial contracts, for example something as simple as buying a bus ticket or something as complex as a house purchase, contain four elements:
To illustrate these four elements we can draw on the example of a house purchase. An individual may visit a particular house and decide they would like to buy it. As a result of this they decide to make an offer. The current property owner may decide to accept this offer – subject to contract. ‘Subject to contract’ will necessarily involve the person who wishes to buy the house – the offeror – receiving a satisfactory structural survey and acquiring the necessary purchase price either in cash or (more likely) through a mortgage.
If these requirements are satisfactorily fulfilled, a contract can be drawn up. In consideration for the agreed purchase price, the existing property owner – the offeree – agrees to give up their property rights in the house and exchange them through contract to the offeror. Thus consideration is the mechanism that validates the contract: that is, each party gives something to the contract, in this case a house for money by the offeror and money for a house by the offeree. If a contract contains offer, acceptance and consideration, the presence of these factors indicates that the parties to the contract wish to create a legally binding relationship.
A legally binding contract must also satisfy the following factors. First, the contents of the contract, to which the parties have agreed, must be reasonable. Second, the contract in itself must be legal, in terms of the prevailing law. For example, a contract to assassinate a person may contain offer, acceptance and consideration and an intention to create a legally binding relationship between the parties. However, conspiracy to murder is a criminal offence, thus any contractual relationship is void – the legal term for invalid.
Third, there must be genuine consent between the parties, and the parties themselves must have the capacity to consent to the agreement. For example, minors and bankrupts have only limited capacities in contract. From this brief introduction we can now proceed to look at employment contracts, which are a very specialised form of contract. A contract of employment is a contract of service, where an employee – the subject of the contract – is in the personal service of their employer.
It is necessary to distinguish an employment contract of personal service from a commercial contract for services. As Wedderburn (1986: 106) makes clear, the law marks off the employee under a contract of service from independent contractors – self-employed workers – who may provide services to an organisation under a commercial contract. For example, a commercial contract whereby catering or cleaning services are provided to one firm by a second firm is a contract for services, not an employment contract, even though the work is performed by labour. Catering staff may be employees in the offeror firm, but the offeree firm has bought their services under a commercial contract for catering services.
A contract of employment differs from a commercial contract for services in the sense that an employment contract of personal service to an employer is intended to be an open-ended relationship. It is a relationship that continues until either party decides to end it through due notice, whereas a commercial contract is more likely to be a precise exchange of services over a clearly defined period of time.
Some employment contracts today are of a temporary or fixed-term nature, but nonetheless an employment relationship is created, whereas in commercial contracts of a long-term duration, for example computer or photocopier servicing, an employment relationship is not created. Equally, such commercial contracts are likely to contain clear and precise contractual duties for each party.
Thus commercial contracts are a purely contractual relationship and, unlike employment contracts, are not subject to the common law duties of an employer and employee which operate as implied terms and conditions within the contract of employment. The common law refers to areas of law that are not covered by parliamentary or European Union legislation. The common law has been developed by the judiciary: that is, the common law is judge-made law. Now that we have defined contract and distinguished between commercial and employment contracts, it is possible to proceed with a discussion of the underlying assumptions behind contract theory.
The philosophical basis of contract is derived from the principle of market individualism. Market individualism suggests that the individual is the best judge of his or her own interests. From this suggestion the notion of freedom of contract is introduced, which assumes that individuals are self-determining agents, who are primarily self-interested. Thus individuals are able to fulfil their own self-interest most effectively if they are free to enter into contracts between themselves within the market mechanism.
Freedom of contract suggests that individuals act as free agents when they enter into contracts as both parties to a contract have equal status before the law and they jointly determine the terms and conditions of the contract. It follows from this assumption that the component elements of a contract – offer, acceptance and the consideration between the parties – are arrived at through a process of negotiation and then agreement to create legal relations.
This may be the situation in the case of a house purchase, but in relation to employment the situation is somewhat different. As Fox (1985: 6) points out, contract theory alone, with all that it entails in terms of equality and references to adjudication by an outside body, cannot be an effective mode of regulation in the case of employment if the parties to the contract are in dispute. In the UK this is the case because the employment relationship remains one of status.
The notion of status derives from paternalism in the master and servant relationship inherent in ‘employment’ prior to the rise of industrial economies. Examples of paternal employment include domestic service and tied cottages for estate farmers and general agricultural labourers. In the nineteenth century, domestic servants and agricultural labourers were not employees in the modern sense of the word; rather they were subject to a crude form of commercial contract whereby they provided their labour services to a master in return for board and lodgings.
However, once employment became contractually determined in a formal legal sense it did not constitute a clean break with the past. By this we mean that the contractual process incorporates characteristics from pre-industrial ‘paternal’ employment: for example, the status bias of the master and servant relationship. Fox identifies paternalism as the basis of status within employment. Paternalism refers to a situation of subordination to legitimate authority.
Prior to the contractual determination of employment the process of subordination to legitimate authority was entirely within the master–servant relationship. Within contractually determined employment, the employee subordinates him or herself to the greater legal authority of the employer, the superiority of which is derived from the status-based relationship of master and servant.
So, although employment contracts provide employees with a degree of independence from their employer – for example, employees can terminate their employment through due notice – employees remain subordinate parties to the employment contract. They are subject to the reasonable and legitimate authority of their employer, to whom they provide personal service.From the above discussion it is clear that equality before the law in employment contracts is a fiction because employer authority is derived from their paternal status which underpins the employment relationship.
This is often referred to as the managerial prerogative. In most contracts the agreeing parties are assumed to be the best judges of their own interests. However, in employment the status bias of the employer gives them the privilege of determining their self-interest and a partial say in the determination of employee interests. This privilege derives from the concept of subordination, which implies that the junior partner to the employment contract cannot perceive all their real interests. Kahn-Freund (1984) described the individually based contract of employment as an act of submission on the part of the employee:
An employer may determine the organisation of work, levels of payment and duration of working time. The employee is bound by such impositions if they are reasonable. Thus the notion of free employment contracts bears little resemblance to the real world (Hyman, 1975: 23). Relatedly, although all employees have an individual contract of employment, the terms and conditions of an individual’s contract of employment are likely to be determined and regulated by means of a collective agreement, the details of which are normally incorporated in an individual’s contract of employment.
These agreements are often negotiated by a trade union through the process of collective bargaining. In the absence of a trade union and collective bargaining ‘collective agreements’ are unilaterally determined by management on behalf of the employer; they are not the subject of negotiation. This point again illustrates that the notions of individual negotiation and freedom of contract exist at only a superficial level of relations between employer and employee.
There are two features of the English legal system that highlight the contexts within which all aspects of the law operate. First, the English legal system, unlike most other legal systems (for example, those of other European Union states), does not operate in conjunction with a written constitution or a Bill of Rights. In the specific area of employment the absence of a written constitution or a Bill of Rights means that British subjects do not possess any specific inalienable rights as employees: for example, the right to strike. Second, and relatedly, the system is very conservative – some would say obsessed with the past.
This conservatism explains why ‘precedent’ has so prominent a role in the common law. Precedent operates on the basis of decisions previously arrived at in a higher court. It is judge-made law that creates a rule for lower courts and subsequent future cases of a similar nature. Thus a precedent creates an example for subsequent cases or acts as a justification for subsequent decisions.
Advocates of Britain’s unwritten constitution argue that its major benefit is adaptability over time, which contrasts with the rigid mechanism of a written constitution around which new developments have to be moulded. In matters of employment many of the rights held by British subjects result from case law and precedent and from trade union activity in collective bargaining. Equally, trade unions have a consultative role in the formulation of statutory protections and provisions such as the national minimum wage or the statutory procedure for trade union recognition under the Employment Relations Act 1999.
Earlier in this part of the chapter, the concept of ‘freedom of contract’ was introduced. This concept assumes that individuals are self-determining agents who are primarily selfinterested. It follows from this that individuals both freely enter into contractual arrangements and jointly determine the terms and conditions of an employment contract. In the case of employment, the notion of freedom of contract operates in conjunction with the common law duties of employer and employee.
That is, although contracts of employment may be entered into freely, the contract of employment itself incorporates the common law duties of employee and employer.
Common law duties of the employer
These are to:
Vicarious means that a legal duty is delegated to an employer to provide a safe working environment for employees, that is, it is a duty imposed on employers. Aspects of this liability are codified in statute under the Health and Safety at Work Act 1974. In the year 2001–2002 the Health and Safety Commission reported 249 deaths in the workplace, a 15 per cent reduction on the previous year. The most common causes of death in the workplace are falls, moving objects and moving vehicles. Construction with 30 per cent of deaths and agriculture with 16 per cent of deaths are the most dangerous sectors of employment. The average fine for a work-related death is £30 000, with the Health and Safety Commission winning 84 per cent of the cases where it prosecuted employers.
Common law duties of the employee
These are to:
The common law duties of the employee and employer are not always detailed in the written particulars of a contract of employment, and may be implied terms in the contract derived from custom and practice or statutes. In market economies the contract of employment is freely entered into; however, the terms and conditions, whether they are express or implied, are not jointly determined, and in terms of employee and employer obligations they are not equal in terms of their scope and coverage.
In most cases the employer is in the dominant bargaining position because they are offering employment. Hence the employer is able unilaterally to determine how the common law duties of the employee are to be fulfilled. The common law duties of the employee, as listed above, are clear and precise but open to considerable interpretation. In contrast to this, the common law obligations of the employer are imbued with the tenet of limited reasonableness: that is, the obligations imposed on the employer should not be unreasonable. Thus the general concept of reasonableness can only be tested in individual cases.
As Hyman (1975: 24) argues, the symmetrical equality within the concept of self-determining individuals freely entering into contracts of employment is really asymmetrical because of the form that the notion of equality (before the law) and freedom of entry actually take. Clearly, equality before the law belies the market power held by an employer. Individual equality before the law places firms that have access to necessarily expensive legal advice on the formulation of employment contracts and individuals bereft of such a capability on the same plane.
As we pointed out earlier, within the contract of employment freedom and equality are fused with the traditional status bias of employment, and it is this that appears to reduce the equality of the employee and raise the equality of the employer. This dealignment of equality creates the asymmetrical situation described by Hyman.
Every employee has a contract of employment. However, not all workers have a contract of employment. Where an employer provides regular work, defines working hours, the place of work and deducts income tax and National Insurance through the PAYE system, an employment relationship is created and anyone engaged on these terms is likely to be an employee. In contrast to this situation, a worker who is not an employee will pay their own income tax and National Insurance contributions, decide when, where and how they work and make their own holiday and sick pay arrangements.
Hence many workers work under a contract for services as described above. However, in addition to self-employed contractors and freelance IT specialists, journalists, consultants etc., some agency workers, casual workers and ‘home workers’ may be classified as having worker status rather than employee status. A contract of employment is not always written down in one document, and sometimes the contract may not be written down at all.
There are several types of employment contract, as detailed below.
Permanent, ongoing or open-ended contracts
This type of employment contract is assumed to continue until either side gives notice of an intention to terminate the contract.
This type of contract has a specified duration, but does not contain any restrictive fixed terms or waivers – for example, the requirement that the employee waive their right to statutory protection against a claim for unfair dismissal or redundancy. A temporary contract may be made permanent, and in this case the clause that relates to the specified duration will be removed, and the time served under the temporary contract will constitute continuity of service.
Hence in the case of employment rights that are based on an employee’s length of service – for example, unfair dismissal, which is currently set at one year’s length of service – it is unnecessary for the employee to serve another full year to acquire this protection. However, although the general principle is clear, it is a complex area of law subject to the particular circumstances of individual cases.
This type of contract has a specified duration: that is, a clear start date and a clear and unequivocal termination date. Examples of this might include situations where employment is subject to ‘funding arrangements’ that are not renewable, a specific one-off project or matters such as maternity and paternity leave. Both parties to a fixed-term contract should be aware that the contract is not renewable.
More significant than this, many employees who are subject to fixed-term contracts are required to waive their statutory protections against unfair dismissal and redundancy. The EmploymentRelations Act 1999 prohibits employers from using waiver clauses against unfair dismissal; however, redundancy waivers continue. Since November 2001, employees under fixed-term contracts have equal rights to those of permanent employees in terms of pay rates and pension provision.
‘Casual’, ‘spot’ or zero hours contracts
Under this type of contract the employee must be available for work, but the employer does not have to guarantee work: for example, a retired teacher may be on call to cover for sick colleagues. Equally, banks use call staff to cover busy periods such as lunchtime, whereas the Post Office employs many casual workers at Christmas. In most situations this type of contract is mutually beneficial and not open to abuse; however, if a worker is required to be at work but clock off during slack periods – a practice once common in many fast-food outlets – zero hours contracts are open to abuse.
For example, such a worker could remain at the workplace for long periods yet have a very low rate of hourly pay owing to continual clocking off. In an effort to overcome some of the abuses of zero hours contracts a person employed on such a contract is now entitled to the national minimum wage, whereas the Working Time Directive entitles the person to a paid holiday provided they worked during the preceding 13 weeks.
The vast majority of individuals who are engaged under a zero hours contract will be classified as an employee; however, some employers have attempted to argue that engagement under a zero hours contract is compatible with worker status. The basis of this argument centres on the ‘mutuality of obligation’ between the employer and the worker or employee. If someone engaged under a zero hours contract does not have regular hours of work and is able to decline offers of work and/or work elsewhere, there is unlikely to be a mutuality of obligation between the two parties.
It is the presence of mutual obligation that creates the employment relationship establishing the employer and employee. This is a controversial area and the distinction between worker status and employee status is persistently criticised by the TUC and other employee groups. Up to 9 million workers in the UK may have worker status, many of whom are arguably de facto employees, for example long-term agency workers or temps engaged in one organisation.
The TUC is campaigning for all workers to have the status of an employee and therefore receive the basic contractual and statutory protections outlined earlier in the chapter. On the specific issue of agency and temporary workers, the UK’s forthcoming adoption of European Union directives may provide the basis of some improvement in employment protection. We have established that in the vast majority of cases the employer is the dominant party in the employment relationship. This dominance enables the employer to determine many terms and conditions contained within the employment contract.
There are three types of terms and conditions within a contract of employment.
Express terms and conditions
These form an explicit part of an individual contract of employment. They are often referred to as the written terms and conditions of the contract that are included in the written statement of the contract. Any employee, irrespective of the number of hours they work, must be given a statement of the written terms and conditions of their contract within two months – eight weeks – of starting work. The statement must include the following items:
This legislation establishes that an employer does not have an automatic right to demand an employee’s home phone number unless the express terms of an employment contract state that an employee has a duty to be available outside normal working hours.
Temps employed by an agency are entitled to paid holidays if they work for 13 weeks. This is the case even if they move between different workplaces as long as the employment is continuous. The situation with respect to temporary workers will be further clarified by the EU Agency Workers Directive.
Implied terms and conditions
These are terms and conditions that are not explicitly stated in an individual contract of employment but which are assumed to be included in the contract: for example, workplace custom and practice arrangements and the common law duties of the employer and employee.
Incorporated terms and conditions of employment
These are terms and conditions that are incorporated into individual contracts of employment as either express or implied terms. Incorporated terms and conditions of employment include the provisions of collective agreements negotiated between an employer and a recognised trade union and statutory protections passed by Parliament or the European Union.
In English law, collective agreements negotiated between employers and trade unions through the process of collective bargaining are not legally binding. However, elements within collective agreements are legally binding if they are incorporated into individual contracts of employment: for example, working hours and pay rates.
Employers are able to change terms and conditions of employment; however, employees have some rights if an employer seeks to change terms and conditions without consultation and agreement. A unilateral change in pay rates represents a serious breach of contract, as does the unilateral removal of a company car, reductions in holiday entitlements and suspension of an employer’s pension contribution. Employees can accept unilateral changes and work normally under protest – object to the changes and seek to minimise the effects of the unilateral change and seek representation through a trade union – or leave and claim ‘constructive dismissal’.
All employees have a contract of employment; equally, all employees receive some level of statutory protection against arbitrary and unreasonable treatment by an employer. Statutory protection can be framed in individual terms, for example protection against sexual and racial discrimination in the workplace; alternatively, rights may be collective, for example the statutory procedure for trade union recognition introduced by the Employment Relations Act 1999.
Since 1995 all workers, either full-time or part-time, have been subject to the same day one statutory rights irrespective of how many hours they work. Statutory day one rights provide a minimum level of protection to all workers. Some workers may have additional contractual rights negotiated by their employer and a recognised trade union. In addition to day one rights, other rights depend on an employee’s length of service.
Equal pay/equal value
The Equal Pay Act 1970 (EPA) as amended inserts an equality clause into contracts of employment that can be enforced by an employment tribunal. Under the EPA clauses within a contract of employment must be equal between the sexes. The equality clause enforces equal terms and conditions in the contracts of men and women employed in the same organisation. The clause covers pay and all other contractual terms of employment.
The EPA is applicable in three situations:
Equal value is measured in terms of the demands upon the worker in terms of skill levels, effort and decision-making. If different work is held to be of equal value under these criteria then the two groups of workers must have the same pay levels. Pay is constituted in its widest sense and includes salary scales or pay rates, access to occupational pension schemes, redundancy protection, sick pay, travel concessions and other perks.
In the 1980s, USDAW (the shop workers’ trade union) and the Equal Opportunities Commission successfully fought equal value cases on behalf of supermarket checkout workers, who are predominantly women, against delivery dock and warehouse workers who were predominantly men. An employer may defend an equal value case on the grounds that differences in pay between men and women are justified on the grounds of a genuine material factor that is both relevant and significant in the particular case.
The fact that a particular group of workers who are predominantly women includes a male worker does not constitute a genuine material factor: that is, men who receive lower pay than other men employed in the same organisation are able to claim that their work is of equal value. For example, the presence of a ‘token’ male checkout worker or school lunch assistant appears insufficient to defeat a claim for equal value.
In summary, a claim to equal pay for work of equal value normally involves women in comparison to men; however, the presence of lower-paid men cannot undermine a claim because men are also protected in respect of equal pay for work of equal value.
It is unlawful to discriminate against an employee on grounds of their sex or marital status, or because of pregnancy. Employment protection legislation covers discrimination in respect of pay, whereas the Sex Discrimination Act 1975 as amended (SDA) covers discrimination in respect of selection, training, promotion, termination (e.g. selection for redundancy) or any other detriment in employment (e.g. sexual harassment). The SDA applies equally to men and women except with respect to pregnancy provisions, and defines discrimination in three ways:
Some cases of indirect discrimination appear to be intentional, whereas other cases result from a failure to update personnel procedures in accordance with the law: for example, dress codes that prevent women from wearing trousers. An employer may choose to defend a charge of indirect discrimination on the grounds that the apparently discriminatory provision is a necessary requirement of the job.
For example, in selection exercises for the fire service candidates must be able to expand their lung capacity by a certain measurement. Many women applicants are unable to meet this requirement: hence it appears to have a disproportionate effect on women. However, many men are unable to meet the requirement. Lung expansion is a requirement of a firefighter’s job because it plays a part in assessing whether or not a candidate would be able to escape from a variety of smoke-filled situations.
Claims of direct and indirect sex discrimination are in the majority of cases launched by women; however, the law is equally applicable to men and women, an equality that was recently demonstrated in the decision of an employment tribunal. In this case a male worker in a Stockport job centre won a claim for sexual discrimination because he refused to wear a tie at work. The basis of this claim was that he was told what to wear whereas female colleagues were not and that female colleagues were allowed to wear tee shirts as opposed to more formal blouses. Currently the decision of the tribunal stands, but the Department of Work and Pensions has indicated that it may appeal this decision.
Racial discrimination and harassment
The Race Relations Act 1976 (as amended) (RRA) follows the model set by the SDA and defines racial discrimination as direct, indirect and victimisation. Cases of direct racial discrimination in employment on the grounds that a person is black, Asian, or Afro-Caribbean are less in evidence than during the 1960s. However, examples of indirect racial discrimination in employment turn on the relevance of apparently race-neutral job requirements that have a disproportionate effect on ethnic minorities: for example, requirements that preclude candidates on the basis that their grandparents were not British, or English language requirements.
If these requirements are unrelated to the job they may well be indirectly discriminatory. Racial victimisation in employment covers matters such as racial abuse, suggestive behavior or harassment as a result of an employee attempting to enforce a statutory right. Certain types of employment are exempt from the provisions of the RRA: for example, staff in specialised restaurants and community social workers who are required to speak particular ethnic languages.
The rules and regulations in respect of maternity rights are very complicated. It is important that both the employer and the employee follow them carefully. Some employees have better maternity arrangements than the statutory arrangements; this is usually the result of collective bargaining arrangements in the workplace.
All women are entitled to maternity leave, which under the provisions of the ERA was set at 26 weeks and was further extended by the maternity and paternity leave regulations to 52 weeks of which up to 26 weeks are paid maternity leave. The entitlement is unrelated to the number of hours worked or length of service. A pregnant employee must conform to the following requirements:
Maternity leave may be extended if the employee is sick or has an illness related to confinement. The day one employment rights listed above and below establish that employees who are either pregnant or on maternity leave cannot be dismissed or made redundant because of pregnancy or a pregnancy-related illness contracted or diagnosed as commencing before or after the birth of the child.
An employee who fulfils the following criteria is entitled to statutory maternity pay when:
Statutory maternity pay is calculated on the basis of 6 weeks at 90 per cent of earnings plus 12 weeks at the basic rate of statutory sick pay. Employees who do not qualify for maternity pay may receive maternity allowance from the Department of Social Security. Awards for maternity allowance depend on an employee’s National Insurance contribution.
The Disability Discrimination Act 1995 (DDA) makes it unlawful for an employer to discriminate against applicants for employment and employees who have a disability in relation to job applications, promotion, training and contractual terms and benefits. The provisions of the statute cover all employees from permanent to casual. In addition, subcontract workers are also covered. The DDA is not universal in application. Currently, employers with fewer than 15 workers are exempt from its provisions. Small employers can discriminate against the disabled without the threat of legal sanction.
The DDA defines disability as mental or physical impairment that has a long-term and substantial adverse effect on the ability of an individual to perform normal daily activities. The legislation goes on to amplify this definition under several headings. First, the nature of impairment is broadly interpreted to include recognised medical conditions, for example HIV-positive status, schizophrenia and other forms of mental illness.
Second, the requirement for a substantial effect rules out minor complaints such as hay fever or colour-blindness. Third, and related, a condition of impairment must last at least a year or the rest of a person’s life to qualify as a long-term effect. This requirement rules out impairments such as whiplash resulting from minor motor accidents and other temporary debilitating illnesses. Last, the ability to undertake normal daily activity covers issues such as the ability to hear and learn, comprehend the perception and risk of physical danger, continence, eyesight, hearing, manual dexterity, memory, speech and physical coordination.
The DDA outlines three tests for disability discrimination:
In addition to the above day one rights, all employees have the following day one rights where relevant:
Access to the following statutory rights is dependent upon an employee’s length of service, but is unrelated to how many hours they work.
Connex, the train operating company, was recently ordered to pay £55 000 to a train driver who successfully demonstrated his victimisation after he published concerns over safety risks. £18 000 of the award was for aggravated damages and injury to feelings. Connex declined to appeal the tribunal decision.
Employers are required to provide employees with the periods of paid notice listed in Table. Employers must give employees full pay for the notice period even if the worker is off sick or on maternity leave.
Minimum notice periods
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