Employment contract in English law
Encyclopedia
An employment contract in English law is a specific kind of contract
English contract law
English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...

 whereby one person performs work under the direction of another. The two main features of a contract is that work is exchanged for a wage, and that one party stands in a relationship of relative dependence, or inequality of bargaining power
Inequality of bargaining power
Inequality of bargaining power is a concept used in social sciences and humanities, particularly law and economics to denote the situation where freedom of contract ceases to be real and markets fail....

. On this basis, statute, and to some extent the common law, requires that compulsory rights are enforceable against the employer.

There are diverging views about the scope by which English law covers employees, as different tests are used for different kinds of employment rights, legislation draws an apparent distinction between a "worker" and an "employee", and the use of these terms are also different to their use in the European Court of Justice
European Court of Justice
The Court can sit in plenary session, as a Grand Chamber of 13 judges, or in chambers of three or five judges. Plenary sitting are now very rare, and the court mostly sits in chambers of three or five judges...

 and European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

 Directives. Under the Employment Rights Act 1996
Employment Rights Act 1996
The Employment Rights Act 1996 is a United Kingdom Act of Parliament passed by the Conservative government to codify the existing law on individual rights in UK labour law. Previous statutes, dating from the Contracts of Employment Act 1963, included the Redundancy Payments Act 1965, the...

 section 230, an "employee" is anyone with a contract of service, which takes its meaning from a series of court cases that are also applicable for tax and tort law
English tort law
English tort law concerns civil wrongs, as distinguished from criminal wrongs, in the law of England and Wales. Some wrongs are the concern of the state, and so the police can enforce the law on the wrongdoers in court – in a criminal case...

, where different judges have given different views about the meaning of the word. An "employee" is entitled to all types of rights that a worker has, but in addition the rights to reasonable notice before a fair dismissal and redundancy, protection in the event of an employer's insolvency or sale of the business, a statement of the employment contract, rights to take maternity leave or time off for child care, and an occupational pension.

A "worker" is a broader concept in its statutory formulation, and catches more people, but does not carry as many rights. A worker means any person who personally performs work, and is not a client or a customer. A worker is entitled to a minimum wage, holidays, to join a trade union, all anti-discrimination laws, and health and safety protection.

Employment status

As yet, the UK has not consolidated a comprehensive definition of the people to whom employment rights and duties apply. Statute and case law, both domestic and European, use 2 main definitions, with approximately six others. The EU does have one consolidated definition of a ‘worker’, which is someone who has a contract for work in return for a wage, and also stands as the more vulnerable party to the contract. This reflects the kernel of classical labour law theory, that an employment contract is one infused with “inequality of bargaining power
Inequality of bargaining power
Inequality of bargaining power is a concept used in social sciences and humanities, particularly law and economics to denote the situation where freedom of contract ceases to be real and markets fail....

”, and stands as a justification for mandating additional terms to what might otherwise be agreed under a system of total freedom of contract
Freedom of contract
Freedom of contract is the freedom of individuals and corporations to form contracts without government restrictions. This is opposed to government restrictions such as minimum wage, competition law, or price fixing...

.
UK courts have agreed that an employment contract is one of a specific type, and that it cannot be equated with a commercial agreement. However, UK statutes deploy two main definitions, of an ‘employee’ and a ‘worker’, with a different number of rights. The government may also pass secondary legislation to include specific groups of people into the ‘employee’ category. An ‘employee’ has all available rights (all the rights of a ‘worker’ but also child care, retirement and job security rights). The meaning is explicitly left to the common law under the main statute, the Employment Rights Act 1996
Employment Rights Act 1996
The Employment Rights Act 1996 is a United Kingdom Act of Parliament passed by the Conservative government to codify the existing law on individual rights in UK labour law. Previous statutes, dating from the Contracts of Employment Act 1963, included the Redundancy Payments Act 1965, the...

 section 230, and has developed according to the classical 19th century contrast between a contract ‘of service’ and one ‘for services’. While the classical test was that an employee was subject to a sufficient degree of ‘control’, new forms of work where people were had greater autonomy outside the factory to choose how to do their jobs, meant that, particularly from the mid-20th century, additional tests of employment were developed. Multiple factors, including how much one could said to be ‘integrated’ into the business, or whether one metaphorically wore the ‘badge’ of the organisation, were looked at, with a focus, it was said on ‘economic reality’ and form over substance. Multiple relevant factors would include how much the employee was ‘controlled’, if they owned their tools, if they had the chance of profit and bore the risk of loss. But in the late 1970s and 1980s, some courts began to speak of a new test of ‘mutuality of obligation’. One view of this was merely that workers exchanged work for a wage. Another view stated that the employment relationship had to be one where there was an ongoing obligation to offer and accept work. This led to cases where employers, typically of people on low wages and little legal understanding, pleaded that they had only hired a person on a casual basis and thus should not be entitled to the major job security rights.

In addition, a ‘worker’ is defined in ERA 1996 section 230 as someone with a contract of employment or who personally performs work and is not a client or a customer. So this concept has greater scope, and protects more people, than does the term ‘employee’. This class of person is entitled to a safe system of work, a minimum wage
Minimum wage
A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...

 and limits on working time, as well as discrimination and trade union rights, but not job security, child care and retirement rights. This concept thus reaches up to protect people who are quasi-self employed professionals, albeit not so vulnerable, such as a home cleaner, or music teacher who visits student homes, or a taxi cab driver wearing a firm’s logo.
  • Autoclenz Ltd v Belcher
    Autoclenz Ltd v Belcher
    Autoclenz Ltd v Belcher [2011] is a significant UK labour law case decided by the Supreme Court of the United Kingdom, concerning the scope of statutory protection of rights for working individuals...

  • Jivraj v Hashwani [2011] UKSC 40, arbitrators do not have employment contracts.

  • Governing Body of Clifton Middle School v Askew [2000] ICR 286, employment relationship
  • Edmonds v Lawson QC
    Edmonds v Lawson QC
    Edmonds v Lawson QC [2000] is a UK labour law case regarding the National Minimum Wage Act 1998 and who is not included. It held that pupil barristers are not included for the purposes of the Act.-Facts:...

    [2000] EWCA Civ 69, [2000] IRLR 391, pupillage, not an apprentice?
  • Mingeley v Pennock and Ivory (t/a Amber Cars) [2004] EWCA Civ 328, taxi driver wearing the organisation’s badge
  • Hall v Woolston Hall Leisure Ltd [2000] IRLR 578, illegality does not lose someone discrimination protection
  • Beloff v Pressdram Ltd [1973] 1 All ER 241

  • Ferguson v John Dawson & Partners (Contractors) Ltd [1976] EWCA Civ 7, [1976] 1 WLR 1213, Megaw LJ, declarations of employee status to be "wholly disregarded"
  • Calder v H Kitson Vickers & Sons (Engineers) Ltd [1988] ICR 232, 251, Ralph Gibson LJ says declarations are not conclusive, but relevant
  • Newnham Farms Ltd v Powell (2003) EAT/0711/01/MAA, employment contract arising from conduct


Mutuality of obligation
  • Clark v Oxfordshire HA [1998] IRLR 125
  • Hall v Woolston Hall Leisure Ltd [2000] IRLR 578, dependent entrepreneur
  • Consistent Group v Kalwak [2008] EWCA Civ 430
  • Lemmerman v. A.T. Williams Oil Co.
    Lemmerman v. A.T. Williams Oil Co.
    Lemmerman v. A.T. Williams Oil Co., 350 S.E.2d 83 was a case before the Supreme Court of North Carolina which hinged on the question of whether the plaintiff met the definition of an "employee" of the defendant under the state's Workers' Compensation Act.It appears as a principal case in the...

    , 350 S.E.2d 83 (1986)

Types of right

Employee
  • statement of contract, ERA 1996 s 1
  • reasonable notice, ERA 1996 s 86
  • unfair dismissal, ERA 1996 s 94
  • redundancy, ERA 1996 s 139
  • guaranteed pay on employer insolvency, ERA 1996 s 94
  • TUPER 2006, Business Transfers Directive 2001/23
  • maternity, paternity and parental leave
  • request flexible working time, ERA 1996 s 80F
  • right to return to work
  • Information and Consultation of Employees Directive 91/533
  • Income Tax (Earnings and Pensions) Act 2003, Part 11, employed earner, ‘gainfully employed under a contract of service’
  • contributions to National Insurance, SSCBA 1992 (c 4) ss 1(2)(a)(i) and 2(1)(a)


Worker
  • union organisation, TULRCA 1992
  • minimum wage, NMWA 1998
  • 28 days holiday, working time limits, WTR 1998
  • Collective Redundancies Directive 98/59, though UK reg’s used ‘employee’
  • free movement within EU, TFEU, C 53/91 Levin and C 256/01 Allonby

Express contract terms

Once a person's work contract is categorised, the courts have specific rules for determining, beyond the statutory minimum charter of rights, what are its terms and conditions. Analogous rules for incorporation of terms, and implication terms exist as in the ordinary law of contract, however in ‘’Gisda Cyf v Barratt
Gisda Cyf v Barratt
Gisda Cyf v Barratt [2010] is a UK labour law case, concerning unfair dismissal governed by the Employment Rights Act 1996.-Facts:Gisda Cyf employed Ms Barratt. On 30 November 2006 a letter was sent to her that she was being summarily dismissed for gross misconduct, apparently misconduct at a...

’’, Lord Kerr emphasised that this process of construction is one that must be “intellectually segregated” from the general law of contract
English contract law
English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...

, because of the relation of dependency an employee has. In this case, Ms Barratt was told her employment was terminated in a letter that she opened 3 days after its arrival. When, 3 months and 2 days after arrival, she lodged an unfair dismissal claim, the employer argued it was time barred on the ground that in ordinary contract law one is bound by a notice when a reasonable person would have read a message. The Supreme Court held that Ms Barratt was in time for a claim because she was only bound by the notice when she actually read it. The applicable in employment was different, given the purpose of employment law to protect the employee. From formation to termination, employment contracts are to be construed in the context of statutory protection of dependent workers.

  • Statutory compulsory terms: right to statement, payment of wages, notice, fair dismissal, redundancy, minimum wage, working hours, pension
  • British Telecommunications plc v Ticehurst [1992] ICR 383

  • Cheltenham Borough Council v Laird
    Cheltenham Borough Council v Laird
    Cheltenham Borough Council v Laird [2009] is an English contract law and UK labour law case concerning the right to seek damages for misrepresentation under the Misrepresentation Act 1967...

    [2009] EWHC 1253 QB, on misrepresentations before entering an employment contract

Incorporation of terms

The terms of employment are all those things promised to an employee when work begins, so long as they do not contravene statutory minimum rights. In addition, terms can be incorporated by reasonable notice, for instance by referring to a staff handbook in a written employment agreement, or even in a document in a filing cabinet next to the staff handbook. While without express wording they are presumed not binding between the union and employer, a collective agreement may give rise to individual rights. The test applied by the courts is to ask loosely whether its terms are ‘apt’ for incorporation, and not statements of ‘policy’ or ‘aspiration’. Where the collective agreement’s words are clear, a "last in, first out" rule was held to potentially qualify, but another clause purporting to censure compulsory redundancies was held to sound like it was binding ‘in honour’ only.

  • Parkwood v Alemo – Herron [2010] IRLR 298, incorporation of varying collective agreement terms
  • TULRCA 1992 ss 179, 180, 236
  • Harlow v Artemis International Corp Ltd [2008] EWHC 1126 (QB), online redundancy incorporated
  • Johnstone v Bloomsbury Health Authority
    Johnstone v Bloomsbury Health Authority
    Johnstone v Bloomsbury Health Authority [1991] 2 All ER 293 is an English contract law case, concerning implied terms and unfair terms under the Unfair Contract Terms Act 1977.-Facts:...

    [1991] 2 All ER 293, law implied, safe work over flex cl
  • Henry v London Greater Transport Services Ltd
    Henry v London Greater Transport Services Ltd
    Henry v London Greater Transport Services Ltd [2002] is a UK labour law case concerning the scope of protection for people to employment rights...

    [2002] EWCA Civ 488, varying collag binding maybe w/o vote
  • Robertson v British Gas Corp
    Robertson v British Gas Corp
    Robertson v British Gas Corp [1983] ICR 351 is a UK labour law case concerning the contract of employment. It held that by withdrawing a bonus that was fixed by collective agreement, an employer had broken individual employment contracts...

    [1983] ICR 351, bonus in collag binding
  • Alexander v Standard Telephones & Cables Ltd (No 2)
    Alexander v Standard Telephones & Cables Ltd (No 2)
    Alexander and Wall v Standard Telephones & Cables Ltd [1991] IRLR 287 is a UK labour law case concerning the scope of protection for people to employment rights...

    [1991] IRLR 287 13
  • Camden Exhibition & Display Ltd v Lynott [1966] 1 QB 555 13

  • Malone v British Airways plc [2010] IRLR 431; [2010] EWHC 302 (QB) incorporation of perks into from a collective agreement into individual contract and variation


Implied terms

In addition to statutory rights, expressly agreed terms and incorporated terms, the contractual hallmark of the employment relation is the series of standardised implied terms (or terms implied in law) that accompany it. In addition to individualised implied terms that the courts construe to reflect the reasonable expectations of the parties, the courts have long held that employees are owed additional obligations, such as a safe system of work and payment of wages even when the employer has no work to offer. Reflecting more recent priorities, employers have also been recognised to have a duty to inform their employees of their workplace pension rights, although they have stopped short of requiring employers to give advice on qualifying for workplace disability benefits. The key implied term, however, is the duty of good faith
Good faith
In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...

, or “mutual trust and confidence”. This is a flexible concept that is applied in a broad variety of circumstances leading to remedies in damages or an injunction, such as to require employers do not act in an authoritarian manner, call employees names behind their back, treat workers unequally when upgrading pay, run the company as a front for international crime, or exercise discretion to award a bonus capriciously. There is tension among judges about the extent to which the core implied term of mutual trust and confidence can be 'contracted out of', with the House of Lords having held that the parties are "free" to do so, while others approach the question as a matter of construction of the agreement which is within exclusive judicial competence to define.

The second, and older hallmark of the employment contract is that employees are bound to follow their employers’ instructions while at work, so long as that does not contravene statute or their agreed terms. Every employment relation leaves the employer with a residue of discretion, historically expressed as the ‘master-servant’ relationship. Today, in practice, this leaves the employer with the ability to vary the terms of work in accordance with business need. The courts have allowed this to continue, so long as it does not contradict a contract’s express terms, which always require an employee’s consent, or renegotiation of a collective agreement. However, it has also been held that employers may insert ‘flexibility clauses’ allowing them to reserve the right to vary any contract term. The limits of the courts’ tolerance of such practices are evident if they touch procedures for accessing justice, or potentially if they would contravene the duty of mutual trust and confidence.
  • Master and servant: discretion of employer outside written terms, flexibility

  • Devonald v Rosser & Sons
    Devonald v Rosser & Sons
    Devonald v Rosser & Sons [1906] 2 KB 728 is a UK labour law case concerning the contract of employment. It held that an implied term of employment contracts is that when there is no work available to be done, the employer must bear the risk by continuing to pay wages.-Facts:In a test case, Mr...

    [1906] 2 KB 728, fact implied, risk of no work
  • Sagar v Ridehalgh & Sons Ltd
    Sagar v Ridehalgh & Sons Ltd
    Sagar v Ridehalgh & Sons Ltd [1931] 1 Ch 310 is a UK labour law case concerning the contract of employment. It concerns the implication of terms, regarding deductions from wages, through the custom of an industry.-Facts:...

    [1931] 1 Ch 310, implied by custom, wage deductions
  • Wilsons and Clyde Coal Ltd v English [1938] AC 57, law implied, safe work
  • Wilson v Racher
    Wilson v Racher
    Wilson v Racher [1974] ICR 428 is a UK labour law case concerning constructive dismissal. It serves as an example of an employer being found to have wrongfully dismissed an employee, because of the employer's own bad behaviour...

    [1974] ICR 428, mtc manners, justifying termination
  • Mahmud and Malik v BCCI SA [1998] AC 20, mtc implied, law implied, reputation
  • Transco plc v O’Brien
    Transco plc v O’Brien
    Transco plc v O’Brien [2002] is a UK labour law case concerning the contract of employment.-Facts:Mr O’Brien worked through an employment agency. He moved to an hourly wage...

    [2002] EWCA Civ 379, mtc implied for equal treatment
  • Crossley v Faithful & Gould Holdings Ltd
    Crossley v Faithful & Gould Holdings Ltd
    Crossley v Faithful & Gould Holdings Ltd [2004] is an English contract law case, concerning implied terms.-Facts:Mr Crossley was a director of Faithful & Gould Ltd. He suffered a nervous breakdown. Under the firm’s disability insurance scheme, so long as he was an employee he was entitled to...

    [2004] EWCA Civ 293, law, not implied for finance advice
  • Woods v WM Car Services (Peterborough) Ltd
    Woods v WM Car Services (Peterborough) Ltd
    Woods v WM Car Services Ltd is a UK labour law case, concerning unfair dismissal, now governed by the Employment Rights Act 1996.-Facts:...

    [1981] ICR 666, EAT; [1982] ICR 693 11
  • Baldwin v Brighton and Hove City Council [2007] IRLR 232, [2007] ICR 680 (EAT) 11
  • Crowson Fabrics Ltd v Rider [2007] IRLR 288; [2007] EWHC 2942 (Ch) 11
  • Home Office v Evans [2007] EWCA Civ 1089, [2008] IRLR 59 12
  • The Post Office v Roberts [1980] IRLR 347 12
  • Mallone v BPB Industries plc [2002] EWCA Civ 126 12
  • Luke v Stoke County Council
    Luke v Stoke County Council
    Luke v Stoke-on-Trent County Council [2007] is a UK labour law case, concerning the test for an implied term.-Facts:Mrs Beryl Luke was a special needs teacher for Stoke. She had a dispute with the headmaster and went off sick from October 2002 to April 2003...

    [2007] EWCA Civ 761 13

Contractual variations

  • Cresswell v Board of Inland Revenue
    Cresswell v Board of Inland Revenue
    Cresswell v Board of Inland Revenue [1984] ICR 508 is a UK labour law case concerning the contract of employment.-Facts:Mr Cresswell worked as a tax officer. He and others were required by the Inland Revenue to start using computerised record systems to calculate people’s taxes and sending out...

    [1984] ICR 508, using new technology, er discretion
  • Dryden v Greater Glasgow Health Board
    Dryden v Greater Glasgow Health Board
    Dryden v Greater Glasgow Health Board [1992] IRLR 469 is a UK labour law case concerning the contract of employment. It held that a variation of company workplace customs, which are incorporated into individual contracts of employment can take place after a proper consultation without breaching...

    [1992] IRLR 469, varying work rule book no breach
  • French v Barclays Bank plc
    French v Barclays Bank plc
    French v Barclays Bank plc [1998] is a UK labour law case concerning the contract of employment. It held that changing a staff manual can breach the term of mutual trust and confidence that is implied into every individual contract of employment, and a unilateral change to a workplace practice can...

    [1998] IRLR 646, bridge loan withdrawal mtc breach
  • Alexander v Standard Telephones & Cables Ltd (No 2)
    Alexander v Standard Telephones & Cables Ltd (No 2)
    Alexander and Wall v Standard Telephones & Cables Ltd [1991] IRLR 287 is a UK labour law case concerning the scope of protection for people to employment rights...

    [1991] IRLR 287, collag with lifo not intended incorp
  • Kaur v MG Rover Group Ltd
    Kaur v MG Rover Group Ltd
    Kaur v MG Rover Group Ltd [2004] is a UK labour law case concerning the contract of employment. It held that promises to make no compulsory redundancies in a collective agreement were "aspirational" and not apt for being incorporated into individual contracts of employment...

    [2004] EWCA 1507, collag, no comp redundancy not intended
  • Rigby v Ferodo Ltd
    Rigby v Ferodo Ltd
    Rigby v Ferodo Ltd [1988] ICR 29 is a UK labour law case concerning the contract of employment. It held that if an employer reduces wages without a worker's consent, the worker may continue to work and claim the shortfall.-Facts:...

    [1988] ICR 29, wage reduction, insist on terms

  • Hussman Manufacturing Ltd v Weir [1998] IRLR 288 13
  • Jones v Associated Tunnelling Co Ltd [1981] IRLR 477 14
  • Wandsworth London Borough Council v D’Silva [1998] IRLR 193 14
  • United Bank Ltd v Akhtar [1989] IRLR 507 14
  • Lee v GEC Plessy Telecommunications Ltd [1993] IRLR 383 14

  • Bateman v ASDA [2010] IRLR 370, complete flexibility clause
  • Harlow v Artemis International Corp Ltd [2008] IRLR 629; [2008] EWHC 1126 (QB) variation and termination of the employment contract

Breach of contract

  • Buckland v Bournemouth University
    Buckland v Bournemouth University
    Buckland v Bournemouth University [2010] is a UK labour law case, concerning unfair dismissal, now governed by the Employment Rights Act 1996.-Facts:...

    [2010] IRLR 445


Part performance
  • Wiluszynski v London Borough of Tower Hamlets
    Wiluszynski v London Borough of Tower Hamlets
    Wiluszynski v London Borough of Tower Hamlets [1989] ICR 439 is a UK labour law case concerning the contract of employment. It held that if an employment was only partly performed due to a strike, this could be construed as not completing an entire obligation, so that even if an employer has...

    [1989] ICR 439, strike wages, part performance
  • Secretary of State for Employment v ASLEF (No 2)
    Secretary of State for Employment v ASLEF (No 2)
    Secretary of State for Employment v ASLEF [1972] ICR 19 is a UK labour law case concerning the contract of employment. It held that there is an implied term of good faith in an employment contract, and if the employer withdraws this, it is a breach of contract...

    [1972] ICR 19, work to rule, no good faith is breach
  • British Telecommunications plc v Ticehurst [1992] ICR 383, work to rule, part performance

See also

  • Trades Union Congress
    Trades Union Congress
    The Trades Union Congress is a national trade union centre, a federation of trade unions in the United Kingdom, representing the majority of trade unions...

  • British labour law
    British labour law
    United Kingdom labour law involves the legal relationship between workers, employers and trade unions. People at work in the UK benefit from a minimum charter of employment rights...


  • Baldwin v Brighton City Council
    Baldwin v Brighton City Council
    Baldwin v Brighton and Hove City Council [2007] IRLR 232 is a UK labour law case, concerning gender discrimination and the implied term of mutual trust and confidence.-Facts:...

    [2007] IRLR 232, implied terms
  • Crowson Fabrics v Rider [2007] IRLR 288; [2007] EWHC 2942 (Ch)
  • Home Office v Evans [2008] IRLR 59; [2008] EWCA Civ 1089
  • Standard Life v Gorman [2010] IRLR 233
  • Luke v Stoke CC [2007] EWCA Civ 761
  • Cerberus Software Ltd v Rowley [2001] IRLR 159
  • Harper v Virgin Net Ltd [2004] IRLR 390
  • Eastwood v Magnox Electric plc
    Eastwood v Magnox Electric plc
    Eastwood v Magnox Electric plc [2004] is a UK labour law case concerning damages for wrongful dismissal, which were held to not be limited if a breach of contract occurs during the performance of the contract, rather than at the point of termination....

    [2004] IRLR 732
  • Fraser v Hmlad Ltd [2006] IRLR 687
  • Murray v Leisureplay plc [2005] IRLR 946
  • Kulkarni v MK NHS Trust [2009] IRLR 829
  • Mezey v SW London NHS Trust [2010] IRLR 512
  • Edwards v Chesterfield NHS Trust [2010] IRLR 702

External links

  • The Trades Union Congress website website
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