This is part one of a two-part blog which looks at 5 important considerations when creating employment contracts. This blog will explore what type of document should be used for your specific purposes and the overall form the contract takes. Part two will focus on what should be included in the contract of employment.
1. Consultancy Agreement or Contract of Employment?
It is important to determine whether you require a consultancy agreement or a contract of employment. A consultancy agreement is appropriate where you are seeking to engage someone as an independent contractor. This type of engagement may be suitable where you are looking for someone to provide a service which is not part of your core business (eg; providing IT support or cleaning services for a dental practice). There is typically a right of substitution so the consultant may provide someone else to provide the same service.
Employees have more workplace rights than contractors and are employed directly by the employer. They are entitled to paid holiday, statutory sick pay, and may have recourse to making an unfair dismissal claim pending service requirements. An employment relationship can be appropriate where the staff member is working in a core business activity such as a legal secretary in a law firm or a truck driver in a transport business.
2. Employment Contract or Service Agreement?
Once you have decided to employ the person, you will need to consider whether an employment contract or a service agreement is better in your circumstances. Typically, employees who are also directors will be employed under a service agreement. This document includes additional clauses that are relevant to their positions within the organisation (eg; clauses that refer to resignation from offices, powers of attorney, legislation governing director’s duties etc).
An employment contract is typically used for non-director employees as it deals with the terms of employment without the inclusion of additional irrelevant clauses.
Organisations can choose to have their employees employed under both service agreements and employment contracts dependant on the level of seniority and the position of the employee.
3. Written or Verbal?
Employees may work under oral contracts where they have been recently engaged and a written employment contract has not yet been provided to them. For instance, employees who have been working with the business for less than two months may not be provided written particulars. This will not be the case from 6 April 2020 forward as provision of written particulars will at that point become a day one right.
In any event, it is good practice for a written agreement to be provided to the employee prior to the commencement of their employment at the organisation. Having an agreement in writing ensures that each party is aware of the relevant terms governing the employment relationship and reduces the risk of miscommunication. The absence of written terms is unlawful from 6 April 2020 but a verbal contract also makes it extremely difficult to identify the terms. Our experience is that verbal contracts descend into a ‘he said’ ‘she said’ dispute over what was agreed.
The first step before creating an employment contract is to consider the type of relationship and the type of document that is most appropriate to govern that relationship. The second part of our blog will consider what information should be included in an employment contract.
Given the introduction of the Good Work Plan changes, Paris Smith are offering a comprehensive contract review on a fixed fee basis to ensure legislative compliance and check that contracts reflect best current employment law practice. Should you require any further information, please speak with a member of the employment team.