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The Importance of Employment Contracts

Contracts of employment are the cornerstone upon which the relationship between employers and their employees are built. Though there is a body of statute law which governs specific aspects of the relationship between workers and their employers, such as minimum notice, minimum redundancy payments, annual leave and special leave entitlements, these laws only form a part of the basis upon which the employment relationship is based. The other part of the employment relationship is based on the written terms and conditions given by employers to their employees, which function to work in conjunction with existing statue law to specify and define an employee’s rights as well as their obligations. While employment laws often apply in generalised fashion to either all or specific groups of employees, a contract of employment is a legal agreement between a specific employer and a specific employee.

It is firstly important to note that an employer must within two months of the start of employment provide the employee with their written terms and conditions. There are different formats in which these terms and conditions may be presented, which include but are not limited to:

• A formal legal contract which must be signed by both parties. The individual terms are often negotiable and a contract can be tailored to include terms very specific to the individual position and the employee concerned.
• A 'letter of engagement' which might be quite detailed or which might simply set out the minimum information required under the Terms of Employment (information) Act 1994 (see below). This letter is normally signed by the employee as acceptance of the position. Letters of engagement are easy to use and might at first seem straightforward to draft, but in fact might not contain sufficient detail to inform the employee fully of their terms and conditions and may not adequately protect an employer.
• A handbook might be presented which will comprise the terms and conditions of a worker's employment. An employee is normally asked to sign a document acknowledging that they have read the handbook and agree that the contents of same are the terms and conditions of their position. The possible negative consequence of being given terms and conditions through a handbook is that the handbook applies for all employees and specific terms are not negotiable as they would be in a formal written contract in the form of a traditional legal document.

No matter what format the agreement between employer and employee takes, The Terms of Employment (Information) Act 1994 requires employers within two months of an employee beginning the employment to set out in writing the terms and conditions of the job and to specifically include but are not limited to:

• Name of Employer
• Name of Employee
• Place of Employment
• Job title
• Location of work (and if location may also be elsewhere or outside the state than further details must be given by the employer)
• Start date
• End date (if a temporary contract)
• Working hours and details of overtime pay (if any)
• Pay and frequency of payment
• Benefits, such as bonus scheme, health insurance, use of a company car, payment of tuition fees for further education, etc.
• Holiday entitlements
• Details of any sick pay scheme (though sick pay is not required to be paid under current legislation)
• Details of pension scheme
• Minimum notice to end the employment relationship that must be given by both employer and employee (note that there is a minimum notice required under the Minimum Notice and Terms of Employment Act, 1973)

Contracts from the Perspective of the Employee
Employees can ask for written terms and conditions at any point in time and the employer must provide same within two months. If a person has been in employment since before the Terms of Employment (Information) Act 1994 and has never been issued written terms and conditions or a contract of any type, the employee is still entitled to receive a written copy of these terms. However, if an employee has been in employment without any contract, then an employer cannot force an employee to sign a contract of employment and the employment will continue under the 'custom and practice' created between the employer and employee.

Please note that though the law in some areas requires certain minimums to be respected by both employer and employee, such as entitlement to leave such as carer's leave and maternity leave, minimum notice to terminate the employment relationship, holiday entitlements and many more aspects, it is always open to employers to grant terms of employment which are more favourable to the employee. Thus, while employers may not go below the minimum of what the law requires, they are free to make terms and conditions more favourable to the employee than what the law mandates. This is why it is prudent for an employee to be familiar with their written terms and conditions and referred to in the case of dispute or for clarification as to theirs and their employer's rights. It is important to remember that where minimum terms are required by law, an employer cannot put a term into a contract which is less favourable to the employee than what the law requires. For example, if a woman is offered a term in her contract which states she is not entitled to ever take maternity leave, this is not permissible and the woman is still entitled to take the maternity leave provided for under law. This does not mean that the whole contract between the employer and employee is no longer valid, but it does mean that the illegal term will be treated as if it did not exist in the contract.

It is very often the case that employees sign their employment contract and/or handbook and then forget the specific terms and conditions of their employment. The contract or handbook for many employees is only dusted off when a problem arises. For example, in today's marketplace with many redundancies being effected by employers, it is vital that an employee looks to their written terms and conditions to see if there is a provision for redundancy payment. If the written terms and conditions are silent on this topic, then the terms of the Redundancy Acts apply. Employees are also sometimes surprised to find that their contracts require them to give a notice period to an employer in order to end their employment, which is in excess of what the law requires as a minimum.

It is important to seek professional legal advice before signing an employment contract, as sometimes the legal-speak and details are either not clear to the employee, or at first seem straightforward but upon further clarification of the consequences of certain clauses an employee might require further negotiation of terms or to rethink accepting the position altogether if the terms are clearly unfavourable. Also, it is prudent to regularly check what terms and conditions were agreed between employer and employee.

Contracts from the Perspective of the Employer

Employment contracts are equally important to employers as they are to employees. In the current economy both the contracts of existing employees and of new employees will be looked at with scrutiny. Employers can use contracts to their advantage, especially in times when jobs are scarce. Employment contracts often set out such things as probationary periods, sick pay scheme (or the absence of such a scheme), additional leave which might be taken (such as compassionate leave following the death of a close relation), pension scheme and any further benefits which will be provided by the employer to the employee.

As discussed above, there are specific details which the law requires to be present in terms and conditions or contracts of employment. However, the great advantage to an employer is that there are many items which can be included to protect the employer. For example, a restrictive covenant which could restrict a former employee to take employment within a specified geographical area of their former employer can be included. A clause could also be drafted which would prohibit a former employee from doing business with his or her former employer's clients for a specified period of time. Though the law puts constraints upon the extent of the geographical area and the length of time which covenants may last, they are nonetheless a tool at an employer's disposal. Another example is a condition that an employee must keep all 'trade secrets' and other sensitive information about the employer and the business confidential. An employer can also specify that all inventions and intellectual innovations and processes created by an employee while in the employ of the employer will belong to the employer. Employers can set out the minimum notice an employee must give to terminate the employment and this tends to be longer notice periods for jobs which are more highly skilled and/or harder to find a replacement employee. Probation periods are useful because they could protect an employer from having to continue the employment of someone who is not fulfilling their job functions and role as had been expected at the hiring stage.

A contract of employment is also a vital legal tool for any employer as it is normal practice to include the business' disciplinary code and procedures. This gives a formal plan of action for an employer which must take an employee through a disciplinary process. By following a system of fair procedures as laid out in a well-drafted handbook or employment contract, an employer can go a long way towards protecting the business from claims by employees for unfair dismissal. Sexual harassment and bullying policies are essential in today's workplace and it is important that such policies are drafted clearly and thoroughly with clear disciplinary consequences included. Similarly, well drafted computer and internet usage policies state what is acceptable use of an employer's IT systems. Such policy should include disciplinary processes which will be invoked if such usage policies are breached by an employee. It is extremely important that an employer strictly adheres to these procedures and that penalties are enforced equally amongst all employees so as to avoid claims of discrimination. This also means that handbooks should be regularly updated to reflect the current laws and do not contain outdated policies, especially health and safety requirements and procedures.

Contracts of employment as well as employee handbooks are very important legal documents and it is advisable to seek the advice of a solicitor, who can either draft same on your behalf or make sure that an existing handbook us up to date and properly protects an employer's interest.

Please note that this article is for information purposes only and does not constitute legal advice.

Seeking Employment Law Advice

If you would like to set up a consultation with an Employment Law Solicitor please contact Malcomson Law by calling 01 8744422.

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