It is a common misconception that a contract must be in writing to be binding. This is not correct, and if terms and conditions are orally agreed (e.g. that an employer will allow a particular number of days’ holiday, operate a bonus scheme or provide an upgraded company car) that will be binding, although there may be difficulties in evidencing exactly what was agreed. At its most basic level, an agreement to perform work for pay could be described as an employment contract.
Parties are free to decide on many more specific terms for the contract, either orally or in writing. These are known as “express” terms, i.e. terms which are expressly agreed, such as commission arrangements, access to benefits and post-termination restrictions. The parties will also be bound by certain “implied” terms. These may be implied by a number of different means:
- Where they are reasonable, notorious and certain, so that they have become part of the “custom and practice” of a particular organisation or industry;
- Where they would be so obvious to an objective person that they “go without saying” (the “officious bystander” test) or where they are vital to give the contract practical effect (the “business efficacy” test);
- Where a reasonable person could conclude what was intended by looking at the parties’ conduct; or
- Where they are implied by common law (e.g. the implied term of mutual trust and confidence, which subsists in every employment contract).
In addition to express and implied terms, there are terms incorporated from other sources, usually collective agreements (often in relation to pay bargaining) entered into at company or national level with trade unions.
Finally, the parties will be subject to terms deriving from employment legislation, such as those relating to equal pay, minimum notice periods and paid holiday entitlement and the national minimum wage. The employer can agree to be more generous with all or any of these, but any attempt to agree less generous terms would be void.
Once it has been established that an individual is, or will be, an employee, the employer must provide them with a statement of specific terms and conditions of employment, within two months of starting work. This statement is often known as a “section 1 statement” because that is the provision in the Employment Rights Act which requires it to be given. It is not necessarily the same as a contract, although often there will be common terms in both (e.g. those relating to pay, place and hours of work, notice and annual leave) and so it is normal for a contract to incorporate all the necessary elements of a section 1 statement.