Contracts of employment

A contract of employment is a legal agreement between an employer and an employee which sets out their employment rights, responsibilities and duties.  The employment contract is made as soon as a job offer is accepted.

Paper versus Practice - Contractual terms their use and operation

There is no legal requirement to provide a written contract of employment.  Whilst the law in Northern Ireland requires employers to provide employees with a written statement of employment particulars within two months of starting employment, technically this is not the same as a written contract of employment because it does not have to include all of the terms and conditions of employment, just the main ones.

An employment contract can be verbal, written, or a combination of the two.  Its terms might be express (agreed explicitly between the parties), implied (terms that are too obvious to specify, or that have arisen through custom and practice).

When a dispute arises between an employer and employee, the written employment contract is used as the basis for interpreting the terms and conditions.  However, the express written terms of an employment contract can sometimes be overruled by unwritten terms implied through custom and practice in a particular trade or with a particular employer.  Terms can also be implied by the conduct of the parties, meaning that they act in such a way that suggests a term has been agreed.  For example, it may become customary to leave early on a Friday.  In order for an entitlement to become established by custom and practice, it must be notorious' – this means the term is generally well-known in the business or industry, usually over a long period of time, reasonable and certain.

Being able to show that something has occurred for a particular period of time is in itself not sufficient evidence.  Instead, an outside party must be able to infer from the actions of both the employer and the employee that both parties must have intended for their actions to constitute a legally binding contractual right or obligation.  Often it can be very difficult to establish this.  Sometimes the idea of custom and practice is used to interpret an express term, for instance determining what is meant by 'reasonable overtime'.

The written terms of a contract are typically not superseded by workplace custom and practice. Any written contractual terms will usually be upheld in court as agreed.  If an employer needs flexibility, they must include the appropriate flexibility terms into the contract.  Neither the employer nor the employee ought to assume that any conduct contrary to written terms will change them.  While conduct or custom may fill in any gaps in the employment contract, they typically cannot supersede its terms.  However, it is possible (although uncommon) for custom to take precedence over written agreements if, for instance, it has long been common practice to disregard a written term to the point where employees have come to reasonably expect it to be ignored.

Some employers believe that not committing anything to writing gives them more flexibility however this is incorrect as it causes uncertainty over the terms and conditions of employment. Employees will have employment rights regardless of whether or not they are in writing. However provision of written terms and conditions of employment makes it clear what is expected of employees and what their entitlements are and helps prevent or resolve disputes as both parties are able to identify specific terms of the employment contract.

In the absence of express written employment terms, the default position will be that statutory employment provisions will apply. 

For instance, if an employee has been employed for a month or more but does not have a written contract of employment specifying how much notice they must give upon termination, they will only be required to give the statutory minimum amount of notice which is one week.

Tribunals will view the written terms of employment as strong evidence of what was agreed upon in the event of a dispute. It is therefore in an employer's best interests to support their version of the workplace arrangement with a written contract of employment.

A well drafted contract of employment has the following advantages:

  • It allows employers to have more control over employees in relation to the expected standards of performance.
  • Employers can include confidentiality clauses to safeguard business interests, such as prohibiting employees from disclosing confidential information or using it for personal gain, or restrictive covenants to prevent an employee from competing with the business for a predetermined period of time after leaving the company. However such clauses must be written with precise terms otherwise they will be difficult to enforce.
  • It provides employers with a greater degree of flexibility to vary the terms of a contract, as they do not have an automatic right to do so. Flexibility may be built into the contract regarding changing terms such as place of work and entitlement to bonus schemes.
  • A written contract can impose more extensive obligations on employees than those required by statutory law, such as requiring an employee to provide enough notice to hire a replacement. Without such a clause, employers would not be able to enforce the provision.

To reduce the likelihood of any disputes regarding the terms and conditions of employment, it is recommended that employers provide written employment contracts with precise terms.  The legal requirement to provide a written statement of employment particulars will also be met by doing so.

If you would like assistance in drafting or revising contracts of employment you can register for the Labour Relations Agency free Employment Document Toolkit.  Once you are registered you can unlock free core employment guides to help you build documents, policies and procedures for your own organisation.


Unilateral variation clauses

Varying employees' terms and conditions unilaterally can be risky, except in cases where a flexibility clause applies. This is an express clause that allows the employer to make specific changes to certain terms and conditions. These may include changes to the employee's place of work, job content and hours of work. For example, the employer may require the employee to carry out other duties as the needs of the business requires. Alternatively, the employer may have a general power to vary any of its terms.

Employers should approach terms that give them the power to change the contract with caution, as they can be interpreted restrictively by the courts and implied terms in the contract may limit their effect. They should check that flexibility clauses cover the proposed change, consult with affected employees, and act reasonably when operating the clause.

Employers should consult with the affected employees to reduce the risk of a constructive unfair dismissal claim. The employer should attempt to obtain employees' express consent to the variation as this will remove the risk of claims that the clause does not allow the change or that the employer has acted unreasonably.

Flexibility clauses that relate to a specific provision of the contract are more likely to be successful, provided that the wording of the clause is clear.

Even with a clear flexibility clause that allows the change, the employer must consider the limiting effects of implied terms. Carrying out a genuine consultation exercise will help the employer to demonstrate that it has acted reasonably in operating the variation clause.

If the employer attempts to vary the employment contract unilaterally, the employees can do one of three things: continue to work under protest and bring a claim against the employer (the stand and sue approach), resign and claim constructive unfair dismissal, or waive the breach of contract.

An employee has the option to continue working while making it obvious that they are protesting the change and do not accept it. Then, although still working, they might be able to lodge a claim against the employer. The most frequent type of claim in this circumstance is for breach of contract, in which the employee seeks to recover damages from the employer. Only in cases when the employee has a financial claim will this be a viable choice.

The employee needs to point to a clear breach of contract, but does not need to demonstrate that the breach is a fundamental one. Employees may also be able to bring an unfair dismissal claim when standing and suing, provided that they can show that the variation of the contract constitutes a fundamental breach. This means that a dismissal will have taken place, notwithstanding the fact that the employee has continued to work for the employer under a new contract.

Employees have the right to resign and claim constructively unfair dismissal if the unilateral variation is sufficiently fundamental.

Employees who do not act promptly after being made aware of a unilateral variation may be taken to have waived the breach of contract. If they waive the breach, they will be deemed to have accepted the new contractual terms. There is no set time frame within which they will be deemed to have waived the breach, as it will depend on the particular circumstances.

Further assistance in this area of employment law can be obtained by contacting the Agency’s Workplace Information Service at 03300 555 300.

Last updated: 31 July 2023