Employment law myths: contracts

Matthew Briggs of Osborne Clarke continues a series of articles on employment law myths with a look at some myths around contracts of employment.  These include a myth about the contract of employment when a job offer is withdrawn. 

Myth: An employee does not have a contract of employment if there is nothing in writing.

It is a common misconception that, where there is nothing in writing to determine the relationship between an employer and employee, the employee does not have a contract of employment. Some employers believe that, where there are no written terms and they want to dismiss an employee or change his or her working arrangements, pay or benefits, they can do so without any repercussions because there is nothing in writing.

However, a contract of employment is formed once an employee accepts a job offer and it continues for the duration of the employment. The contract of employment is, in effect, the relationship between the employer and employee, whereby the employee carries out work for the employer in exchange for some benefit (namely remuneration). That this is not expressed in writing in a formal document does not mean that there is no contractual relationship. The absence of anything in writing also does not prevent the application of the usual statutory employment law rights (for example the right to claim unfair dismissal, redundancy payments and unlawful discrimination). Nor does it mean that employers can alter terms and conditions without risking being in breach of contract.

Individual employment terms can be binding even if they are not in writing. In the event of a dispute about the terms of employment during the course of employment or on termination, the court or tribunal will determine the terms by looking at the conduct of the parties. Terms may also be implied through the employer's custom and practice, industry standards or common law.

While written terms are not a prerequisite for the existence of a contract of employment, under s.1 of the Employment Rights Act 1996 employers have a legal obligation to provide employees with written details of particular terms of their employment (see the Employment law manual > Contracts of employment > Written statement of employment particulars for more details).

Aside from the statutory requirements of s.1 of the Employment Rights Act 1996, it is also advisable for employers to set out terms and conditions in writing. While it is possible to agree terms verbally, this creates uncertainty and leaves both parties in a difficult position if a dispute arises about rights and obligations under the contract. Further, employers that want to protect their business from competition and misuse of confidential information should not rely on implied terms and verbal agreements to do this. Instead, they should put in place specific provisions to protect those interests.

Where the employer has issued a written contract of employment but neither party has signed it, the parties will continue to be bound by the terms of the contract if they have worked in accordance with it.

Myth: An employer cannot withdraw a job offer once it has been made.

Changes in customer demand, available funding and other factors sometimes result in an employer wanting or needing to withdraw a job offer that it has made. In these circumstances, can the employer simply notify the individual that he or she is no longer required?

Employers often think that they are bound to provide employment to an individual once they have issued him or her with an offer of employment. This is not necessarily the case. If circumstances change so that the employer no longer requires an individual's services, it can withdraw the offer of employment. However, the consequences of it doing so depend on whether or not the prospective employee has already accepted the employer's offer of employment.

If the prospective employee has not accepted the offer of employment, no employment contract exists. If the employer wants to withdraw the job offer it should write to him or her explaining the change in circumstances and making clear that it is withdrawing the offer of employment.

If the prospective employee has accepted the job offer, a contract of employment has come into force between him or her and the employer. This means that the withdrawal of the job offer will constitute a breach of contract, even if the individual has not commenced work with the employer. On the employer's withdrawal of the job offer, the prospective employee will be entitled to be paid for the notice that he or she would have received in the event of starting work and then being dismissed. If the employer fails to pay the employee for this period of notice, the employee can bring a claim for breach of contract in the employment tribunal or civil court.

Where the employer has made a conditional offer of employment, for example an offer subject to it receiving satisfactory references or the prospective employee passing a medical check, and that condition is not satisfied, the contract is not formed and the employer is able to withdraw its offer of employment without being in breach of contract. (An employer that is considering withdrawing a job offer because of the result of a medical check should be aware of the requirement to make reasonable adjustments if the prospective employee has a disability under the Equality Act 2010 (see Employment law manual > Equality and human rights > Disability discrimination > Reasonable adjustments for more details).)

Myth: If an employee resigns without giving notice, the employer can withhold pay owed.

When an employee resigns without giving notice, the employer may believe that the employee has forfeited the right to receive further payments from it. However, employers are not entitled to withhold pay they owe to employees who have left without giving notice, for work that they have already carried out, although they may withhold the pay that the employee would have received had he or she worked the notice period.

An employer "left in the lurch" by an employee does have some legal redress. The employee's failure to give notice is a breach of contract and the employer can bring a claim in the civil courts for the financial loss that it has suffered. However, it is often difficult for employers to establish loss or damage to the business and, as a result, very few claims are brought by employers in these circumstances.

An employer that has been forced to hire cover at a higher pay rate or pay an overtime rate to other employees to cover the shortfall in work caused by an employee's failure to give notice may be able to quantify its financial loss. This may make it worthwhile for the employer to sue the employee for the losses that it has suffered.

The next article in this series will look at some myths around maternity rights and will be published on 20 August.

Matthew Briggs (matthew.briggs@osborneclarke.com) is an associate in the employment team at Osborne Clarke.

Further information on Osborne Clarke can be accessed at www.osborneclarke.com.