Employment Law Q&A - Contracts of Employment

Q: We are employing a full-time secretary, who, subject to a satisfactory probationary period, we hope will work with us for a significant period of time. What kind of contract should we use?

A: The majority of contracts of employment are for an indefinite period; terminable only when notice is given by one or either party. In most cases, including the one cited, this is the kind of contract that you should use. While all such contracts are characterised by their indefinite term, their content can be varied widely, making them appropriate for the most senior or the most junior member of staff. It is perfectly acceptable to include a probationary period within an indefinite term contract; however, contrary to popular belief, there is no special legal effect of using such a provision. All it means is that during a probationary period, employment can be terminated upon a specified shorter period of notice if the employer does not feel that the employee is suitable.

Q: Unfair dismissal legislation makes 51 weeks’ continuous employment a bit of a magic number. Can we use a fixed-term contract of 50 weeks to avoid an employee getting these rights?

A: A fixed term contract is one that has a definite termination date, although the duration of the fixed-term contract may be for any period, and these contracts should include an option to terminate (on notice) before the fixed term has expired.

Employers should be careful, however, about using fixed-term contracts under the misapprehension that they are somehow a less protected form of employment. It is therefore usually wise to use them only where there is a legitimate reason; for instance:

• Where the employee is employed to work on a project that will continue for a specified period;
• Where an employee’s position is funded by a third party for a specific period;
• Where a position is to cover for maternity leave or a sabbatical; or
• Where the employee will be employed for a discrete season of work.

Employees who are employed under fixed-term contracts are specifically protected by the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations. For example, fixed term employees can no longer be excluded from the benefits offered to equivalent permanent staff unless they are appropriately compensated elsewhere in their overall package and the use of successive fixed-term contracts is limited to four years, after which time the employee will automatically be regarded as a permanent employee on an indefinite contract.

Another common misconception is the assumption that a fixed term contract containing a specified end date releases the employer from the obligation to give notice. In order to achieve this effect, additional wording will be required to make it clear that no notice is required to be given for the contract to terminate on the end date.

Finally, employers should also be aware that the expiry of a fixed term contract without being renewed on the same terms constitutes a dismissal for both unfair dismissal and redundancy purposes in the same way as it does for a permanent employee, subject of course to the employee having the requisite service. A fixed term employee with under a year’s service can also be treated as automatically unfairly dismissed if the reason for the non-renewal of their contract falls into certain categories.

In short, it is possible to initially employ staff using a short-term fixed contract. However, without a legitimate purpose justifying employment on a fixed term, there is little practical benefit to the employer of using such a contract. Employers would instead be wise to monitor and manage all new employees rigorously; use probationary periods to properly assess an employee’s suitability for the job and to effectively address problems and, if necessary, dismiss during the very early stages of employment.

Q: We employ a number of part-time employees. Should they have different contracts to their full-time counterparts and can we give them different terms of employment?

A: The answer to the first question depends very much on how your full-time employment contract is drafted. Part-time workers will, naturally, work shorter hours and, consequently, receive less pay, holiday and (if the business provides enhanced sick pay entitlement) sick pay; all of which will be pro-rated to their hours of work. It is however possible, if drafted carefully, to include these variations in one contract for both full and part time staff. Like fixed-term employees, part-timers are protected by statute; in this case the Part Time Workers (Prevention of Less Favourable Treatment) Regulations. As a result, part-time workers are entitled (unless it is objectively justifiable) to the same hourly rate of pay and overtime as comparable full-time workers, they should not be treated less favourably than comparable full-time workers in terms of rates of sick pay or maternity pay (including the length of service required for qualification to such scheme),access to pensions, benefits, access to training, holiday pay and career breaks and selection for redundancy. In short, while you may pro-rata entitlement to accurately reflect the differences to full and part-time employees, substantial deviation of terms is not advisable, unless terms are on balance equalised.

Q: We have just employed an executive director who will work five days a week in the business. Should we have a special contract for her?

A: Most executive directors will be employed on a service contract, which, like most employment contracts, will vary depending on the needs of the business and the commercial terms of employment. Service contracts may be either fixed-term or indefinite, but employers of directors should be aware of the corporate requirements and rules of best practice which preside over the employment of directors. Service contracts may, to some degree, mimic the contracts of very senior members of staff; for instance including post-termination restrictions, rights to garden leave and rights over confidential information. But they will usually also include provisions concerning their role as a director of the company; for instance the termination of employment may be tied to the termination of directorship and a summary of the increased duties that they owe the company as directors.