Employment Status and Contracts

Note: employment law differs between jurisdictions and changes frequently. This course covers principles that are common across many systems. Always check the law applicable where you operate, and take professional advice on specific cases.

Employment status

Rights depend on status, and status is determined by the reality of the working relationship rather than by what the contract calls it. Labelling someone self-employed does not make them so if the arrangement has the characteristics of employment.

• Employee — the fullest set of rights: protection from unfair dismissal after a qualifying period, redundancy entitlement, notice, family-related leave, and the full range of statutory protections.
• Worker — an intermediate category in many systems, with rights to minimum pay, paid holiday, rest breaks, and protection from discrimination and unlawful deductions, but not unfair dismissal protection.
• Self-employed contractor — running their own business, with limited statutory employment rights and protection mainly from discrimination in some circumstances.

The factors considered typically include: personal service or the right to substitute; mutuality of obligation; control over how, when and where work is done; integration into the organisation; provision of equipment; financial risk; and whether the person can profit from sound management of the work.

Misclassification is a recurring and expensive problem. Organisations engaging contractors who work exclusively for them, under direction, over long periods, frequently find the relationship reclassified with retrospective liability for tax, holiday pay and other entitlements.

The contract

A contract exists from the moment an offer is accepted, whether or not anything is written. Written terms are normally required to be provided within a defined period and should cover: the parties, start date, job title and duties, place of work, pay and payment intervals, hours, holiday, sickness arrangements, notice, pension, disciplinary and grievance procedures, and any probationary period.

Express and implied terms

Contracts contain express terms, which are stated, and implied terms, which are not written and are nonetheless binding. Implied terms arise from statute, from custom and practice, and from the nature of the relationship.

The most significant implied term is mutual trust and confidence — neither party will act in a way calculated to destroy the relationship. Serious breach by the employer can entitle an employee to resign and claim constructive dismissal. Conduct that has founded such claims includes unwarranted disciplinary action, humiliation in front of colleagues, failure to address a genuine grievance, and unilateral fundamental changes.

Custom and practice can create binding terms. A benefit provided consistently over a long period, without reservation, can become contractual even though nothing was written, which is why discretionary benefits should be expressed as discretionary and applied that way.

Changing terms

Contractual terms cannot normally be changed unilaterally. The routes are agreement, which requires genuine consent and usually something offered in return; a flexibility clause, which must be reasonably exercised and does not permit fundamental change; or termination and re-engagement on new terms, which is a dismissal and carries the associated risk and obligations.