Drawing up a contract of employment. (Checklist 097).

This checklist details the steps involved in drawing up a contract of employment. It is primarily aimed at new contracts, but many points will also be useful to those who have to modify an existing contract. As with any legal document it is essential that advice is sought before a contract is put into effect.

Legislation does not require that an organisation has to have a formal written contract with its employees, but such a contract can prevent disputes over terms and conditions at a later date, whereas oral agreements can often be called into question.

Management Standards

This checklist has relevance to the MSC National Occupational Standards for Management: Key Role C--Manage People.

Definition

A contract of employment is a legally enforceable agreement, either oral or written, between an employer and employee that defines terms and conditions to which both parties must adhere. Areas covered include job title, remuneration, holidays, sick pay, location, mobility, and the period of employment. Extra clauses can be added which restrain the employee after termination of employment, or make a certain qualification or confidentiality a prerequisite of the job.

Advantages of contracts of employment

Having well-drafted contracts of employment means that:

* employees can be clear about their rights

* costs incurred by disputes over terms and conditions can be avoided

* the employer can justifiably terminate employment if an employee does not meet the contract's requirements.

Disadvantages of contracts of employment

There are no real disadvantages to contracts of employment. Writing one that is water-tight but allows both parties some flexibility is difficult. Contracts require resources to draw up and review, and if they are badly written they can do the organisation more harm than good.

Action checklist

1. Analyse the job to be contracted

Look at the job description if there is one, as this will provide information on what the employee's job entails. Clauses in the contract must allow the employee to carry out their duties without restrictions. The post may require the person to have a professional qualification--would the person be allowed to continue in the role if the awarding body were to withdraw their professional status?

2. Consider future plans and objectives

Would you expect the size of the workforce to be reduced in the future? If so, a permanent contract may not be appropriate. A particular job title may not be suitable if you have to transfer the employee to a different department; a general title, such as `Admin Officer' may offer more scope for change. If you have plans to open further sites throughout the country, you may need to incorporate a mobility clause to cater for employees who will have to work there from time to time. By including clauses such as mobility, the organisation can ensure that its workforce will adapt to its future needs and developments.

3. Look back at problems

The organisation may have had problems with contracts of employment in the past. This could have been due to the nature of the work the organisation does, for example, or an employee could have left taking some customers with them in the process, or have created some intellectual property whose ownership is disputed, or have resisted relocation because a contractual statement was lacking

4. Gather information and confer with colleagues

Try to obtain some sample contracts of employment used in organisations in the same field, and get hold of literature relating to the current requirements of personnel legislation. Colleagues can offer good advice over what has and has not worked in the past, both in the current organisation and others in which they may have worked. Trade union representatives can point out contentious issues that may arise. If your organisation has a legal department, consult it. If not, be prepared to go outside; costs incurred here could well save in the long term.

5. Incorporate Written Particulars

The Employment Protection (Consolidation) Act (EPCA) 1978 and the Trade Union Reform and Employment Rights Act (TURERA) 1993 require that all employees whose employment lasts over a month, irrespective of the number of hours they work, are given a written statement of employment particulars. The Acts do not make it necessary to include these particulars in a contract of employment but it is advisable that they are, so that the employee has one document which contains all matters relating to their relationship with the employer.

The particulars that must be given to the employee are:

* the employer's and employee's names

* the date the employment started and will end (if fixed term), or the period it is expected to last if temporary

* the rate of remuneration or how it is calculated, and when it is paid

* terms and conditions relating to hours of work, holidays, holiday pay, sickness and sick pay, and pensions and pension schemes

* the notice required to be given by both employee and employer to terminate employment

* any collective agreements which affect the terms and conditions of employment, for example, those negotiated by a trade union (even if the employee is not a member)

* the job title

* disciplinary rules (or reference to a set of disciplinary rules), the person to whom an employee can apply and the manner in which the application is to be made if the employee is not satisfied with a decision concerning a matter of discipline. The legislation requires this only for organisations with over 20 employees.

* the name of the person who can be approached and the procedure to follow regarding any grievance related to employment

* details of the place(s) of work

* the length of time and currency in which remuneration will be made if the employee is required to work abroad for a period of more than one month.

These written particulars must be given to employees within two months of commencement of employment.

In cases where another document can be referred to, such as a disciplinary procedure, a staff handbook can be used. This document must be accessible; a copy should be given to the employee as part of their induction.

6. Consider possible extra clauses

There are a number of clauses that may be included in a contract of employment, depending on the nature of the job and the needs of the organisation.

Relocation expenses--it may be appropriate to include a clause which requires an employee to repay any relocation expenses incurred if they leave within a certain period.

Uniform or clothing--where there is a standard dress code or protective clothing is needed, make this clear in the contract. Check on sex discrimination legislation over differences between male and female appearance.

Qualifications--if the jobholder is required to obtain or hold a certain qualification by a certain date (educational or professional), define which one and the consequences of failing to have it. Where the employee is funded to obtain a qualification, they may be required to repay the cost if they terminate their employment within a certain period.

Driving licence--employment may be terminated if the employee loses their licence.

Mobility--where the employee is expected to work at different bases, make it clear.

Travel--for many jobs it is necessary to travel to meet customers or clients, so you may need to include a clause to cover this. Clerical workers are usually only expected to be as mobile as far as is reasonably possible on a daily commuting basis, whereas managers can be expected to travel as far as the business requires.

Probation--if a probationary period is used for new employees then its length should be given, with the ability to terminate the contract at the end or an earlier date, or to extend the length of the probation. Include a statement which says that permanent employment will be confirmed in writing, subject to the probationary period being completed satisfactorily.

Retirement--it should be made clear that the contract is terminated when the employee reaches the organisation's set retirement age.

Restraints--in some circumstances it is possible to restrain the activities of an employee once employment has terminated, through the use of clauses known as restrictive covenants. An example would be the use of trade secrets acquired while working for an organisation. Expert advice is essential as the employer is required by law to show that the restraining clauses are not more than is needed to protect their interests.

7. Produce a draft

Have it checked over, preferably by someone with legal expertise. Ensure that all terms are clear and unambiguous, and do not restrict the employee from carrying out or further developing the role.

8. Review the contract

The employee should be made aware that signing the contract is tantamount to a legally binding contract and therefore subject to the law of the land.

Although the employee should not have signed the contract if they are not happy with it, ask them, at a later date, if there is something that they think needs changing. Remember that you can make any changes to the contract without the employee's consent. Problems that occur elsewhere in the organisation may affect contracts wholesale, so be aware. Keep an eye on the personnel literature for court cases and changes in legislation which may affect current or future contracts.

Dos and don'ts for drawing up a contract of employment

Do

* Take time to prepare by examining the job and the future of the role.

* Get an idea of the law relating to contracts of employment.

* Use clear and unambiguous wording in the contract.

Don't

* Forget to draw on the experiences of your colleagues.

* Cut corners--pay for legal advice if it is not available internally.

* Try to restrain the employee too much--allow for some flexibility in the contract.

Useful reading Contracts of employment London: Incomes Data Services, 1998 Contracts, 2nd ed, Olga Aikin London: Institute of Personnel and Development, 1997 The new employment contract: using employment contracts, Patricia Leighton and Aidan O'Donnell London: Nicholas Brealey, 1995

Related checklists

* Preparing and using job descriptions

* Implementing a grievance policy

* Setting up a disciplinary procedure

Thought starters

* Do you know what is in your contract of employment?

* Have you ever had a problem with your contract of employment? What was it?

* Do you know of any case where a contract of employment has been called into question? What happened?

* Has anyone left your organisation and taken staff/customers with them? Could they have been prevented from doing so?

Further information

Checklists are available in the following formats:

* Individual checklists.

* A complete set of 175 on CD-ROM or in hard copy.

* Checklists with permission to photocopy.

Full details of the range of checklists that are available can be obtained from:

Lavis Marketing, 73, Lime Walk, Headington, Oxford, OX3 7AD Tel: 0845 702 3736 (local call rate) Fax: +44 1865 750079 or from Checkpoint on the Chartered Management Institute's website at www.managers.org.uk