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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 principal statute governing the employment relationship. Key rights covered by the act include:

  • the right to a written statement of employment particulars;
  • the right not to be unfairly dismissed;
  • redundancy rights;
  • the right to a minimum notice period;
  • the right not to have unauthorised deductions made from wages; and
  • protection against dismissal or detrimental treatment on the grounds of certain protected activities or statuses.

Other key legislation includes:

  • the Equality Act 2010, which covers discrimination and equal pay rights;
  • the Working Time Regulations 1998, which regulate working time and paid holidays;
  • the National Minimum Wage Act 1998 and the National Minimum Wage Regulations 2015, which cover the national minimum wage and the national living wage;
  • the Transfer of Undertakings (Protection of Employment) Regulations 2006, which govern the transfer of employees in business transfers and service provision changes (including outsourcing); and
  • various statutes dealing with rights for new parents.

Who do these cover, including categories of worker?

The legislation covers employees, workers and self-employed contractors. There is a further employment status – ‘employee shareholder’ – though it tends to be used in very limited circumstances only and the government has indicated that it intends to abolish it.

An ‘employee’ is an individual who has entered into or works under a contract of employment (Section 230(1) of the Employment Rights Act 1996).

A ‘worker’ is an individual who has entered into or works 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 (Section 230(3) of the Employment Rights Act 1996). The term therefore includes, but is not limited to, employees.

A self-employed person is generally in business on his or her own account and provides services to clients of his or her business.

The definitions vary between statutes. For example, the definition of ‘employment” under the Equality Act 2010 is broad and covers employees, workers and some self-employed individuals.


Are there specific rules regarding employee/contractor classification?

Whether an individual is an employee, a worker or a self-employed contractor is a question of both law and fact. The UK courts have developed a number of tests to determine an individual's employment status. It has become clear that in order for a contract of employment to exist, two particular factors must be present:

  • mutuality of obligation between the employer and the employee (ie, the employer must be obliged to provide work and the employee must be obliged to accept and perform the work); and
  • an obligation on the individual to provide the work personally (ie, he or she cannot provide a substitute).

Ultimately, all facts of the particular case must be considered to determine whether the individual is an employee. Certain factors point towards an individual being an employee (eg, where the business deducts tax and national insurance from the individual’s remuneration directly) or genuinely self-employed (eg, where the individual pays his or her own tax and national insurance). 

Both the employment tribunals and the tax authorities have the ability to reclassify a relationship from contractor to employee in appropriate cases. Sadly, the tests they use differ slightly, so it is technically possible to be an employee for tax but not employment rights purposes.


Must an employment contract be in writing?

While a comprehensive written contract of employment is advisable, it is not a legal requirement. However, all employees are entitled to receive, within two months of starting employment, a written statement setting out certain prescribed particulars concerning their employment. These include:

  • the names of the employer and employee;
  • the date on which employment started;
  • details of pay and pay frequency;
  • place and hours of work;
  • holiday and holiday pay entitlement;
  • job title or a brief description of the work; and
  • disciplinary and grievance procedures.

Are any terms implied into employment contracts?

In addition to terms agreed between an employer and employee, certain terms will be implied into the employment relationship. An ‘implied term’ is a term which the parties are taken to have agreed upon either because it is necessary to give business efficacy to the contract (ie, it is necessary to make the contract workable), through custom and practice or through the conduct of the parties themselves.

Certain terms are implied into every contract of employment. These include the employee’s duty to:

  • serve the employer faithfully;
  • obey lawful and reasonable orders;
  • exercise reasonable skill and care; and
  • not destroy the relationship of trust and confidence between the employer and employee.

Employers have a duty to:

  • pay wages and provide work;
  • provide a safe system of work; and
  • not destroy the relationship of trust and confidence between the employer and employee.

Are mandatory arbitration/dispute resolution agreements enforceable?

Mandatory arbitration or dispute resolution agreements are uncommon in general employment contracts. Where included, their enforceability may depend on a number of factors (eg, governing jurisdiction).

How can employers make changes to existing employment agreements?

As a general rule, an employee’s terms and conditions of employment can be changed or varied only if he or she agrees. Some employment contracts contain a right for the employer to make limited changes to the terms and conditions, but the employer must act reasonably when seeking to do so.

As a matter of practice, employers will usually seek the employee’s consent to any changes. If an employee is unwilling to agree to a change in his or her terms and conditions, the employer can affect the change by serving notice in accordance with his or her existing terms and conditions of employment and then offering to re-engage the employee on the new terms and conditions of employment. Under this approach, if 20 or more employees are affected by the proposed changes, an employer must consult on a collective basis prior to making any dismissals.

Foreign workers

Is a distinction drawn between local and foreign workers?

No – but foreign workers must be lawfully entitled to work in the United Kingdom. An employer will commit an offence and be liable for a civil penalty if it employs a person aged 16 or over in the United Kingdom who does not have the right to work in the United Kingdom and to carry out the work in question. Employers can establish a ‘statutory excuse’ (defence) against a civil penalty (which can be up to £20,000 per illegal employee) by checking specified documentation which shows that the employee is allowed to work in the United Kingdom in the role in which he or she is employed. A statutory excuse cannot be relied upon if the employer is knowingly employing someone illegally or has reasonable cause to believe that an employee does not have the lawful right to work in the United Kingdom. Employers will usually include a warranty from the employee in the employment contract that he or she is entitled to work in the United Kingdom, and should also make this a pre-employment requirement.

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