This is an extract of our Contract Of Employment document, which we sell as part of our Labour Law Notes collection written by the top tier of Oxford students.
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THE CONTRACT OF EMPLOYMENT
Contract of employment characterized by a number of factors:
1. Personal and relational- personal service required:
Company B employing Company A is not an employment contract. Death = automatic termination.
Relational in the sense that it establishes a relationship between 2 parties.
Nokes v Doncaster Amalgamated Collieries - employer cannot transfer contract to another employer
2. Consensual- common law contract doctrines e.g on variation apply
3. Mutuality/reciprocity- in the implied terms context - concept functions to 'ensure adequate and reasonable degree of mutuality/reciprocity between rights and obligations of the employee/employer.
4. Indefinite in duration- used to be that employment contract was for annual hiring (look below @
Browning v Crumlin)- presumption of entire contracts but ten:
- Richardson v Koefod (1969): presumption in favour of the open-ended employment contract/'indefinite employment contract'.
- However, 'unrestricted reasonable notice rule'- employee/employer can terminate on reasonable notice.
5. Incomplete- employer deliberately makes express terms general to ensure high level of flexibility due to changing labour market and product market pressures:
- Brown and Rea - distinguish employment contract from sale. There are both ex ante and ex post rules and ex ante fails to cover everything because expectation that parties will amend/fill in ex post. This is because:
Complex and undesirable to specify the precise conduct of the task that will be required
Normally they are long and difficult for one contract to cover the whole time [high transaction costs].
The problem of incompleteness is solved by granting the employer unilateral rights of direction over the employee.
6. Asymmetrical authority/power relation:
'Managerial prerogative' which describes employers general power to assign tasks and functions to employees - allows employer to co-ordinate labour.
The authority and power of the employer translates into the submission and subordination of the employee. Hence the managerial prerogative is relied upon by the employer to co-ordinate labour.
ERA 1996 s230 (2): contract of employment may be formed expressly or impliedly and may be oral or in writing.
Where an express term gives rise to an obligation, its breach will sound an action in damages.
Part 1 Employment Rights Act 1996 (ERA).
Scope of statutory written statement:
1. Information which must be contained in a single document -
ERA 1996 s.1- The employer must issue a 'written statement of particulars of employment' not after 2 months after the beginning of employment as a single document containing
(a) basic info about the employment relationship: names, date employment starts on etc
(b) certain particulars: scale or rate of remuneration/method of calculation/interval of payment/holiday pay/job title/employee's place of work or employer's name+ address etc
2. Information which may be contained in a separate document issued to the employee. THE CONTRACT OF EMPLOYMENT3.
8. Includes info concerning the period for which the contract is expected to continue or the date fixed for it to end; any collective agreements 'which directly affect the terms and conditions of the employment'; if required to work abroad - details of that.
Information which may be contained either in a written statement or in another reasonably accessible document which is reasonably accessible to the employee - (s.6 ERA) - e.g incapacity for work, pensions schemes and benefits, details of length of notice etc.
Disciplinary and grievance procedures and contracting-out certificates (s3 ERA)- Must be specified to employee in a written statement or in another reasonable accessible document.
Timing of notification - Relevant information must be notified to all employees whose employment continues for one month or more, and statement must be issued within 2 months of the employment beginning.
Changes to particulars -s4 ERA - employer must issue a further written statement 'at the earliest opportunity' if there are changes, not later than 1 month after the change took place.
Use of a written contract of employment or letter of engagement to issue particulars (s7A+7B
1996- introduced by Employment Act 2002)::
- The employer may now issue 'a document in writing in the form of a contract of employment or letter of engagement' if that document contains all the written particulars which the employer is obliged to notify. This now avoids the unnecessary duplication of notification.
Remedies - Failure to comply with s.1 leads to employment tribunal under:
- S11 ERA: 'amend those particulars, substitute other particulars as it may determine to be appropriate'.
NB The tribunal can't substitute its view of what terms should be but construe contract to establish whether the statement is in alignment with it.
Not a crim offence not to provide a written statement but:
- S38 ERA:- sanction on employer for failure to provide a written statement.
if employee wins another claim (could be unfair dismissal etc) and it is found that the employer had failed to issue a written statement as required, the Tribunal can award b/
w 2-4 weeks pay as compensation.
LIMITED NORMATIVE EFFECT OF SECTIONS 1-4 ERA:
The statement is declaratory; it has no 'normative' effect.
The terms+ conditions must be derived from the contractual agreement or from incorporation or from an external source e.g legislation or common law implied terms.
o Does this defeat purpose? Employer can avoid obligation to record contract terms by failing to agree to them?
- If there are no terms e.g on pension entitlements, there's nothing to report in the statement:
Eagland v BT  - written statement contained no reference to holiday/sick pay/pension etc. No breach of s.1 - the contract terms didn't include such entitlements so the statement is valid.
This means s104 ERA don't require employers to observe a 'floor or rights' to the employment relationship, merely to formalize those rules of the employment relationship which otherwise have legal or contractual force b/w the parties.
- This was justified due to context in which legislation arose (At time, sector level agreements/collective bargaining provided the floor- this has now gone in practice so is there adequate protection now?).
NB: s3(1)(b) ERA: There is a difference for disciplinary/grievance procedures which must be reported to the employee whether or not they form part of the contract terms+ conditions.
NB: This position is preserved in the EU Directive 91/553. THE CONTRACT OF EMPLOYMENT
DISTINGUISHING CONTRACT AND STATEMENT:
As declaratory only, the statement isn't a normative source of terms for the contract of employment.
So while in practice parties may regard them as one and the same- the statement can't prevail over contract terms. It is just a statement of employer's view of the contract (only evidence of what they've agreed [potentially?]).
If it conflicts with terms drawn from e.g a collective agreementpresumption in the employee's favour that the terms of the CA would normally apply but if the statement is more favourable to the employee, employer may have difficulty rebutting a presumption that the statement was accurate:
Gascol Conversions Ltd v Mercer (1974)
FACT Gascol Conversions Ltd v Mercer, 1974: ER had sent EEs document purporting to discharge its s1
obligations, but which was titled "contract of employment" and which contradicted with the terms of the collective agreement, which EE signed and returned.
HELD Lord Denning held that the document constituted an offer of a new contract, and EE's acceptance amounted to variation of original terms (new contract being made on terms of the written statement). Written terms given precedent over oral terms/terms implied by conduct!
This is problematic coz s1 needs a statement of existing contract terms- how can this be an offer of new terms simultaneously?
System Floors Ltd v Daniel, 1982,
Browne-Wilkinson J said this means that without acknowledgement by both parties that the statement itself is a contract and that the terms are correct, EE cannot be taken to have agreed to variation!
ER will also be in breach of its s1 statutory obligations - EE should be able to deny variation.
CURRENT POSITION: ER will not easily be able to present the statement as evidence of terms derogating from those which would otherwise apply. But if statement favours EE, it will be "strong prima facie evidence" of contractual terms - basically weighted in EE's favour!
Robertson v. British Gas 
Distinguished Gascol- effectively says the written statement is just the employer's view and is only an unaccepted purported view at best- the contract continues as before.
Says that even if the employer issues a written statement which contradicts the underlying contract,
that's not an offer for a new contract, it's a breach of the statute coz employer made an inaccurate statement.
Employer is estopped coz his act is illegal from relying on the new offer.
Deakin says this is justified coz otherwise there's power of the employer to just change the agreement and undermine the collective bargain so there must be a difference b/w the contract and the statement.
Although in Hardarson v Askar Capital (2013)- The court held that the agreed wage cut was effective even though not formally notified to the employee.
Does s7+7A EA 2002 make it easier for employer to effect changes through formal written contract?
- No. if you issue a written statement and it has all the terms in it and you call it a contract, while you satisfy your obligations under s1, this isn't the same as saying 'the statement matches the contract we made'.
CONSTRUCTION, INCORPORATION AND VARIATION OF TERMS:
INCORPORATION OF TERMS FROM COLLECTIVE AGREEMENTS:
Collective agreement- THE CONTRACT OF EMPLOYMENT
TULRCA s178: collective agreement is presumed not to be a legally binding contract
TULRCA s139: Presumption overturned if writing provides that the parties intend it to be legally binding.
If the employer doesn't observe the collective agreement, TU can't sue employer for breach of contract.
Ford Motor v AUEFW (1969): common law- normally no intention to create legal relations b/w parties to a collective agreement.
Marley v Forward Trust Group (1986)- the legal status of the CA b/w the parties is irrelevant to the question of whether it's incorporated into individual contracts of employment.
Incorporating the term into the main employment contract:
An individual worker can only sue employer if the term has been incorporated into the ordinary employment contract.
Incorporation isn't compulsory nor automatic. Mere existence of collective agreement not enough.
Explaining the incorporation:
Agency- been offered as a potential explanation. Union negotiated with employer as agent for each member. However, Deakin argues it's artificial to see it as an agent-principal relationship.
- Problematic analysis coz doesn't account for incorporation of terms for those who joined union after agreement or non-members [and employers tend to routinely apply same terms to members and non-members to reduce transaction costs].
- If it were about agency, TU member as principal could revoke TU's authority to negotiate on its behalf but in practice, ERs don't normally regard EE members as revoking right of TU authority.
The Bridge Term:
CA terms take effect through 'bridging term'. The CA isn't a contract nor statute or delegated law for the workplace, it's a source so the normative effect must be in the individual contract so bridging term needs to be express in individual contract or an implied term.
Express Bridging Term:
- Term could be expressly agreed but more likely that the evidence for existence found in written statements which under ERA s2(2)-4 must refer to any relevant CA.
Implied Bridging Term:
1. Implied in fact:
- Implied term may arise from custom (in fact applied) or from a course of dealing (applied in past so presumed to apply in present/future). However, both rely on past factual practice so problem if practice is unclear or contradictory (Henry v London General Transport Services ).
2. Implied in law:
- Bridging term could be imposed as a 'legal incident of employment'
- Tadd v Eastwood+ Daily Telegraph (1983): ie a necessary incident of the contract which otherwise the contract would be 'inefficacious, absurd or futile'.
No requirement of knowledge by either party. Goes against consensual model of contract?
Braganza v BP Shipping (2015)- UKSC ruled that an employer required to take a
'reasonable' view for the purposes of determining a contractual entitlement (here, a widow's benefit) was bound to take the decision 'rationally, in good faith and consistently with the relevant contractual purpose'.
This approach may be to sector-level, not just to a plant/company level:
Howman and Son Ltd v Blyth 
Right to sick pay implied on the basis that parties would have agreed what the term would be if they had been
THE CONTRACT OF EMPLOYMENT
asked. Fact that sick pay was regularly paid in the industry was relevant: 'the reasonable term to imply is the term normally applicable in that industry'.
1. Appropriateness of terms for incorporation
Substantive terms = normally incorporated. Procedural = inappropriate for incorporation.
British Leyland (UK) Ltd v McQuilken 
Collective agreement provided that employer would interview employees in order to establish whether they wished to take up an option of retraining or accept redundancy.
Held that redundancy is a collective matter inappropriate for incorporation in an individual contract. It is a long-term plan dealing with policy rather than the rights of individual employees under their contracts.
Alexander v Standasrd Telephones and Cables Ltd (No 2)
'Last in, first out agreement' (employees selected for redundancy according to their length of service with the employer) was held to be inappropriate for incorporation.
Questionable. Seniority acquired is important feature of their contract package - term surely deigned and intended to benefit individual employees in proportion to length of service.
o More recent case law has leant in favour of incorporation (Keeley v. Fosroc International Ltd.
 IRLR 961; Sparks v. Department of Transport  IRLR 641).
Malone v British Airways plc 
FACT Agreement governing manning levels of a cabin crew not incorporated despite the clear impact
of working conditions.
Agreement was intended to protect crew in general+ safeguard jobs.
HELD Held that the term wasn't incorporated coz not intended to be individually enforceable coz effect would be 'disastrous' for employer- flights could be cancelled by EEs refusing to work.
Instead, the term was only intended to be binding in honour.
Sparks v Dept of Transport (2016)- a term governing sick leave was held to be apt for incorporation.
Conflicts b/w levels of bargaining:
No guidance, courts worry about fragmentation of national level agreements so have allowed sectoral agreements to prevail over local agreements.
2. Terms implied from custom and practice:
Can it be shown that the parties implicitly contracted on the assumption that these norms would apply.
Custom + practice = 'those transactional rules of job regulation which arise….from a process whereby managerial error or omission establishes a practice which workers see as legitimate to defend"
Custom can only be incorporated into a contract of employment if it is 'reasonable, certain and notorious'. This more restrictive test (than other implied term) is justified by the informal nature of custom and practice.
Sagar v H Ridehalgh and Son Ltd 
Employer claimed benefit of custom of 'making deductions for careless work'. The majority of mills in the district observed a similar practice
COA held that the fact the practice had been in operation for 30 years meant it could be THE CONTRACT OF EMPLOYMENT
incorporated (even know the individual claimant didn't know this).
Unlikely to have same result today: Deakin says custom+ practice plays diminishing role.
1. Case law now suggests the need for a unilateral employer practice to be brought to EE's attention and observed for a period of time b4 its implication or incorporation can be said to take place.
2. Existence of the employer's duty to issue the written statement makes it more difficult to invoke custom as a source of contract terms.
Garrat v Mirror Group Newspapers Ltd 
Implied term incorporated - to qualify for enhanced redundancy payment an employee had to sign a compromise agreement. This represented a longstanding practice and was generally applied in the industry but the collective agreement/ written statement made no reference to this.
COA held that the critical factors were:
1. 'Length of time, frequency, and the extent to which a practice was followed in every case as a matter of routine'
2. 'The understanding and knowledge of both employer and employees'; and
3. Whether the practice was reduced to writing.
3. Incorporation from rules works, personnel documentation, and notices:
Must also be incorporated through a bridging term in the individual contract or through custom etc.
These are more common than CA's.
Petrie v Macfisheries (1940)- express incorporation normally requires reasonable notice to the employee or steps to bring it to his/her notice.
Atrill v Dresdner Kleinword (2012)- oral communication binding.
Attrill v Dresdner Kleinword 
D announced to its employees in August in a 'town hall' meeting broadcast over the company intranet, that DB's board had approved a 'guaranteed' min bonus pool, which was to b allocated to individuals on a discretionary basis according to individual performance 'in the usual way'.
A letter to each employee confirmed that a discretionary bonus for 2008 had been provisionally awarded at a specified sum, subject to a 'material adverse change clause' (MAC clause).
On the same day, reassured again by another town hall meeting that such a clause was unlikely to be invoked. After a takeover, MAC clause invoked, bonus was going to be cut by 90%.
Does the announcement in August create an obligation to pay the bonus sums?
Is the introduction of the MAC clause a breach of implied duty of mutual trust+ confidence?
The exercise of D's powers to unilaterally vary its employee's terms and conditions under clause
1.4 Employee handbook was valid. The announcement was intended to be legally binding and so be capable of having contractual effect. No need for employees to communicate acceptance.
The introduction of the MAC clause was a breach of the implied duty of mutual trust and confidence. Ample evidence to suggest that trust and confidence had been undermined.
Note - if things are not included in the written statement of employment then that is evidence against them having contractual effect.
- NB: This can be rebutted if it can be shown that the parties impliedly contracted on the basis of them having contractual force. THE CONTRACT OF EMPLOYMENT
VARIATION OF CONTRACT TERMS
Emp layers see contract of emp as concluded at a definitive point in time but Freedland says this is at odds with the fluid reality of the situation (most terms agreed dynamically).
Some actions by the employer will not be a variation of the contract terms but part of the managerial prerogative:
- E.g the working conditions, processes and means of performing the prescribed job description,
tasks+ duties the EE will be expected to adapt to (implied duty of cooperation)
- Changing terms which prescribe the EE's job description, duties+ tasks =unilateral variation.
- Aslef (No 2)) -employer could vary the terms of the handbook - expressly stated to be not part of the written contract.
Although ability to change working practices w/o EE consent by amending staff handbooks which haven't been specifically incorporated into contract of emp means no official contract variation as the documents aren't contractual in the first place.
No unilateral right to vary - above the floor of certain non-derogable rights, everything else can be varied by agreement.
Reliance on an express power of variation
Employer may reserve a power in the contract of employment to make certain changes to terms and conditions unilaterally although debatable how effective the term will be.
Bateman v. Asda Stores Ltd. 
ER sought to impose changes to work+ pay structure without employee consent.
Issue- were the changes unlawful and in breach of contract?
ER relied on company handbook incorporated into contract of employment which stated that ER
had 'reserved the right to review, revise, amend or replace the contents of this handbook.
HELD Employer was allowed to rely on the unilateral variation clause in a staff handbook (incorporated into contract of employment) coz the clause was sufficiently wide and clear.
Inequality of bargaining power between Asda and its shop workers - no willing agreement that
Asda had the right to make changes at its discretion to any aspect of their employmnet
All this background should have been highly relevant to the application of rules of construction ICS and Autoclenz implications
Analogous line of authority associated with the ticket cases, where a party has sought to rely on a clause restricting or imposing liability to which the other party would not have been alerted unless adequate steps had been taken to bring it to his attention - Interfoto
Employers also rely on:
1. Flexibility clauses- ie required to do any work which is required by ER to meet the needs of ER's business.
2. Mobility clauses- ER may require you to be transferred to another place.
These allow ER to change duties/workplace location w/o a formal amendment of contact terms but has to abide by implied duty of mutual trust+confidence.
Malone v British Airways plc
BA after failing to reach agreement w Unions representing cabin crew unilaterally reduced the crew complements on its aircraft coz it was suffering losses.
The crew complements had been specified in extensive collective agreements b/w BA+ TU but they specified their provisions would be incorporated into employment contracts ofcabin cre and the statements of terms and conditions issued to cabin crew stated the collective agreements were incorporated into their emp contracts.
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