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The employment relationship

Country specific laws
What laws and regulations govern the employment relationship?

The Employment Rights Act 1996 is the main piece of legislation governing the employment relationship. The act deals with many issues concerning the employment relationship, including:

  • rights to a written statement of employment terms;
  • the right not to be unfairly dismissed;
  • redundancy rights; and
  • rights to a minimum period of notice of termination.

Other key pieces of legislation include:

  • the Equality Act 2010 – concerned with discrimination and harassment in respect of protected characteristics;
  • the Working Time Regulations 1998 – regulates working time and holidays;
  • the National Minimum Wage Act 1998; and
  • the Transfer of Undertakings (Protection of Employment) Regulations 2006 – concerned with the transfer of employees in business transfers and in outsourcing transactions.

Who do these cover, including categories of worker?

These pieces of legislation generally cover individuals who provide personal services. They are broadly classified into three categories: employees, workers and self-employed or independent contractors.

Under the Employment Rights Act, an ‘employee’ is defined as "an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment" (Section 2301(1) of the Employment Rights Act 1996).

A ‘worker’ is defined as:

"an individual who has entered into or works under (or, where the employment has ceased, worked under):

  • a contract of employment; or
  • any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual." (Section 230(3) of the Employment Rights Act 1996)

The definitions vary under the different pieces of legislation; for example, under the Equality Act, the definition of ‘employment’ for discrimination purposes is broad enough to cover employees, workers and some self-employed individuals. The Equality Act protects those who are in or apply for "employment under a contract of employment, a contract of apprenticeship or a contract personally to do work" (Section 83(2) of the Equality Act 2010). 

Are there specific rules regarding employee/contractor classification?

Assessing an individual's status as an employee, worker or self-employed contractor is a question of both law and fact. Key factors include the following:

  • Personal service – does the individual personally perform work or can they provide a substitute?
  • Mutuality of obligation – is there an obligation on the business to offer work and an obligation on the employee to accept and perform that work?
  • Control – how much control is exercised by the business over the individual's performance of the work?
  • Exclusivity – is the individual permitted to work for other businesses or individuals?

The absence of the above factors is likely to indicate that a worker or self-employed contractor rather than an employee; however, the determination of status is always fact specific.

Must an employment contract be in writing?

Although the employment contract itself need not be in writing, employees who have been employed for one month or more are entitled to a written statement of certain particulars of employment within two months of starting employment. This statement must include:

  • the names of the employer and employee;
  • the date when employment started;
  • details of pay and the interval of payment;
  • place and hours of work;
  • holiday pay and entitlement; and
  • job title or a brief description of the work.

Are any terms implied into employment contracts?

As well as the expressly agreed terms between the parties to an employment contract, a number of terms are implied into the contract by common law or statute. Such implied terms fall into the following categories:

Terms implied in fact – where the express terms of the contract fail to deal with an issue, a term may be implied in fact. Various tests have been developed in case law to determine whether a term needs to be implied, including:

  • the business efficacy test (ie, is the term necessary to give business efficacy to the contract?);
  • the officious bystander test (ie, is the term so obvious that it goes without saying?); and
  • considering the parties’ conduct after the contract was made.

Terms implied by law – where the terms are not based on the presumed intention of the parties, but are considered by the law as necessary in a particular type of contract. In employment contracts, the test is whether the term in question is a necessary condition of the employer-employee relationship.

Terms implied by custom and practice – if a custom or practice is "reasonable, notorious and certain" and is followed "because there is a sense of legal obligation to do so", it will constitute a binding, implied term.
Terms implied or modified by statute – Parliament introduces certain statutory rights in employment contracts. For example, all contracts are deemed to include an equality clause, which gives the right to parity of terms and conditions between men and women engaged in similar work, work of equal value or work rated as equivalent.

A number of implied obligations are imposed on employees and employers. Employees’ implied obligations include the duty to:

  • be loyal;
  • obey lawful and reasonable orders;
  • exercise reasonable care and skill; and
  • give reasonable notice.

Employers’ implied obligations include the duty to:

  • pay wages;
  • give reasonable notice;
  • take reasonable care of the health and safety of employees; and
  • provide a suitable working environment.

Are mandatory arbitration/dispute resolution agreements enforceable?

No – mandatory arbitration/dispute resolution agreements are unenforceable on public policy grounds.

How can employers make changes to existing employment agreements?

An employment contract may contain a provision which allows the employer to make changes to the terms and conditions of the contract. However, the basic principle is that an employment contract can be lawfully changed only with both parties’ consent; therefore, any contractual power to make changes will be limited and subject to the employer’s duty to act reasonably when making changes.

Employers can seek to make reasonable changes unilaterally, can request the employee’s consent to the changes or, if the employee does not provide consent, can terminate an existing employment contract and offer re-employment to the individual on the new terms.

Foreign workers
Is a distinction drawn between local and foreign workers?

No – provided that the foreign workers are working lawfully in the United Kingdom. Employers are liable for civil penalties if they negligently employ someone who is not entitled to work in the United Kingdom and will commit a criminal offence if they knowingly employ ineligible persons. If an employer carries out checks on certain documents before employing an individual and during employment, they will have a defence against such charges. In addition to checking immigration documents, employers usually include a provision in employment contracts in which employees warrant that they are entitled to work in the United Kingdom.

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