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Types of contract

Summary

  • Indefinite contracts may require some flexibility to be built into them to enable the employer to change the terms to meet changing conditions. (See Indefinite contracts)
  • The term "temporary contract" can be used to describe a contract that is not expected to be indefinite. (See Temporary contracts)
  • A fixed-term contract is one that ends on a specified date or on the occurrence of a particular event. (See Fixed-term contracts)
  • Part-time workers are contracted to work for fewer hours than the employer's normal full-time hours. (See Part-time contracts)
  • Job-sharing, annualised hours or term-time only contracts can be a form of part-time working. (See Job-sharing, Annualised hours and Term-time only contracts)
  • Casual contracts and zero hours contracts are sometime used by employers where the demand for work is unpredictable. (See Casual contracts and zero hours contracts)
  • Where a secondment agreement is entered into, the rights and obligations of the secondee, host employer and original employer should be agreed and documented. (See Secondment)
  • Volunteers are individuals who offer their skills or labour to an organisation in return for no payment. (See Volunteers)
  • Apprenticeship contracts impose a heavy training duty on employers, and apprentices are more difficult to dismiss than other staff. (See Apprenticeship contracts)

Future developments

Right to request a stable contract: On 17 December 2018, the Government published its Good work plan, setting out its "vision for the future of the UK labour market". The plan follows its publication of Good work: a response to the Taylor review of modern working practices and Consultation on measures to increase transparency in the UK labour market on 7 February 2018.

In the Good work plan, the Government announced that it will legislate for "a right for all workers to request a more predictable and stable contract". The right will apply after 26 weeks' service and is likely to be particularly relevant for individuals on, for example, zero hours contracts. (The Taylor review originally recommended that individuals on zero hour contracts who have been in post for 12 months should have the right to request a contract guaranteeing hours that reflect the hours they work.)

The Government restated its commitment to legislate for a right to request a more stable contract in its Good work plan: one-sided flexibility - addressing unfair flexible working practices consultation, which it published on 19 July 2019.

Employee-shareholder contracts: Provisions in the Finance Act 2017 abolished the tax advantages of employee shareholder contracts for new arrangements entered into on or after 1 December 2016 (2 December 2016 where the individual received independent legal advice on 23 November 2016 but prior to 1.30pm, about entering into an employee-shareholder agreement). In its Autumn Statement 2016, the Government announced its intention to abolish employee shareholder status itself to new entrants "at the next legislative opportunity". On 20 June 2019, the Department for Business, Energy and Industrial Strategy (BEIS) confirmed to XpertHR that this is still the Government's intention.

Indefinite contracts

Most employment contracts could be termed "indefinite contracts". Indefinite contracts are not a type of contract as such. However, this term can be used to describe the standard contractual arrangements under which most employees are typically engaged.

As indefinite contracts may last for some time, employers should consider whether or not to include some flexibility in terms such as the work, hours or location, either through a power to change those terms, or by including some machinery to enable terms to be changed, such as incorporated collective agreements (see Contracts of employment > Variation of contracts).

Additional resources on indefinite contracts

FAQs

Policies and documents

Temporary contracts

The term "temporary contract" has no legal meaning. However, it can be a helpful way to describe employment for which there is no expectation of permanence but where the termination date or the event on which the employment will terminate is not specified (ie where it is not a fixed-term contract). There are some risks attached to using the term "temporary contract" in relation to an employee as it can suggest that he or she does not have certain employment rights and protections when, in fact, he or she does.

An employee who is engaged on a temporary contract will have continuous employment from the start of that contract. Where there are gaps between temporary contracts the employment may still be continuous if the gap amounts to a temporary cessation of work (see Continuous employment > Determining continuous employment > Breaks in employment that count that towards continuous employment). This means that the employee may build up sufficient continuous employment to be able to bring unfair dismissal and redundancy pay claims.

Temporary employees are also entitled to the same statutory rights, such as family-related leave, as employees whose employment is deemed to be permanent. Further, where an employer's statutory duties depend on the number of employees it has, temporary employees will normally have to be included in the count.

The description "temporary worker" or "temporary employee" is sometimes applied to contracts that are for a fixed term or that will terminate on the occurrence of a specific event. These are fixed-term contracts and the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (SI 2002/2034) apply to them (see Atypical workers > Fixed-term workers > Fixed-term Employees Regulations).

Fixed-term contracts

A fixed-term contract is one that ends on a specified date or on the occurrence of a particular event such as the loss of funding or the completion of a task. A temporary replacement for an absent employee whose contract is to terminate when the regular employee returns is employed on a fixed-term contract. The termination of the contract is automatic and neither party need give notice. There is no breach of contract when the contract expires, so there can be no claim for damages.

If the contract is terminated before the expiry date or before the specified event occurs the employee is entitled to damages for breach of contract to cover his or her loss for the entire outstanding period of the contract. The courts will not imply a term permitting the employer (or indeed the employee) to terminate the contract by giving a reasonable period of notice. If it is desirable to have a power to terminate then there must be an express clause in the contract. It has been suggested that if a contract can be terminated by notice before the expiry date then it cannot be a fixed-term contract. However, in Allen v National Australia Group Europe Ltd [2004] IRLR 847 EAT the Employment Appeal Tribunal (EAT) decided that a notice clause did not prevent the contract being one for a fixed term.

The apparent benefit to the employer of a breach-free fixed-term contract may well prove to be illusory. This is because the definition of dismissal for the purposes of unfair dismissal and redundancy includes the expiry of a fixed-term contract unless it has been renewed on similar terms (ss.95(1)(b) and 136(1)(b) of the Employment Rights Act 1996). This means that where a contract expires and is not renewed, an employee with the necessary continuity of employment of two years can bring a claim for unfair dismissal if there is still work, or redundancy pay if the work has ended (see below).

If the employer renews the contract, any disciplinary warnings given under the expired contract will transfer and be effective in the renewed contract. They do not lapse (Fraser v Stolt Offshore Ltd [2003] All ER (D) 185 (Apr) EAT).

To summarise:

  • If the contract ends before the expiry date the employee can bring a claim for breach of contract and get damages for the remainder of the contract unless the contract contains an express notice clause.
  • If the contract ends before expiry the employee can claim unfair dismissal and redundancy if he or she has sufficient continuity.
  • On expiry there can be no breach of contract claim.
  • On expiry there can be both unfair dismissal and redundancy pay claims.

Employees on fixed-term contracts are entitled to equal treatment with employees on permanent contracts under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (SI 2002/2034), which implement Council Directive 99/70/EC "concerning the framework agreement on fixed-term work" and came into force on 1 October 2002. Under the Regulations, the definition of "fixed-term contract" was extended to cover contracts terminating on the occurrence of a particular event, such as the completion of a task or loss of funding. This means that the termination of these task or event contracts is a dismissal for the purposes of unfair dismissal and redundancy pay. The Regulations entitle fixed-term employees to compare themselves with permanent employees employed by the same employer in the same establishment who are doing similar work. See Atypical workers > Fixed-term workers for more details of the rights of fixed-term employees.

In Royal Surrey County NHS Foundation Trust v Drzymala EAT/0063/17, the EAT confirmed that the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 "sit alongside the unfair dismissal regime" and compliance with them does not necessarily mean that a dismissal by non-renewal of a fixed-term contract will be fair.

Fixed-term contracts and continuity

Statutory rights are frequently based on a period of continuity of employment. Continuity of employment is defined in part IV, chapter 1 of the Employment Rights Act 1996 (see Continuous employment > Determining continuous employment).

Continuity of employment is different from continuous employment:

  • Consecutive contracts are treated as one period of continuity of employment so that six consecutive six-month fixed-term contracts add up to three years' continuity of employment.
  • Every week counts towards continuity of employment so long as the employee has worked for part of the week.
  • Gaps between periods of employment are included in the calculation in certain circumstances.

For fixed-term contracts the most important circumstance in which the gap is included is when the gap is caused by a temporary cessation of work. The reason for the gap must be the lack of work and the length of the gap must be such that the tribunal accepts that it is temporary.

As a result, seasonal employees who work for only part of the year may have continuous employment for the full year if the reason for the gap is a temporary cessation of work. School teachers not employed for three months in the summer had continuous employment during the gap in Ford v Warwickshire County Council [1983] IRLR 126 HL. This was applied to casual workers in Cornwall County Council v Prater [2006] IRLR 362 CA. Mrs Prater was engaged by the council under a succession of individual contracts to teach children who were unable to attend school. The council was not bound to offer her work and she was not bound to accept any work offered to her. When she was working under a contract she was an employee of the council. Eventually she became a permanent employee and the question of her continuity arose. It was decided that any gaps between her contracts were temporary cessations of work, thus giving her continuity from the first day of her first contract. In Vernon v Event Management Catering Ltd EAT/0616/07, the EAT held that a casual worker who worked two or three days a week for over two years, under a series of separate contracts, did have continuity of employment. A period of pre-arranged unpaid holiday did not break continuity even though there was no contract of employment during this period.

It is for the tribunal to decide whether the period is continuous employment or a break in continuity (Berwick Salmon Fisheries Co Ltd v Rutherford and others [1991] IRLR 203 EAT). There is no period of time which is such that the gap can no longer be "temporary". However, as a rule of thumb, in respect of workers who work on an annual seasonal basis, tribunals tend to be taking a gap of seven months in the year as being too long to be temporary.

The reason for the lack of a contract must be a temporary cessation of work, so a deliberately engineered gap between fixed-term contracts, which was not due to work need, was not a temporary cessation in Booth and others v United States of America [1999] IRLR 16 EAT.

Where an employee on a fixed-term contract is dismissed prior to the expiry of the fixed term, but an appeal overturns the dismissal, the appeal does no more than reinstate the original fixed-term contract. In Prakash v Wolverhampton City Council EAT/0140/06, Mr Prakash was dismissed for misconduct before the expiry of his fixed-term contract, and his appeal was held some time after the expiry date. His appeal was upheld, with the dismissal being replaced by a two-year warning. The EAT decided that this did not extend the contract, which still expired on the expiry date. However, Mr Prakash could claim wages and benefits from the period from the dismissal to the expiry date.

Rolling contracts

A particular type of fixed-term contract is the rolling contract. This is a contract that is self-renewing for the original contract length on a particular date. For example a two-year self-renewing contract could revert to a two-year contract on every 1 January instead of running down to expiry. It is essential that these contracts contain a clause allowing either party to give notice of termination of the renewal provision, otherwise the contract will be impossible to terminate without breach.

Additional resources on fixed-term contracts

FAQs

Policies and documents

Part-time contracts

A part-time contract is one for which the employee or worker is contracted to work for fewer hours than the employer's normal full-time hours. Employers may enter into a part-time contract because the duties of the job in question are insufficient to warrant full-time working. Some part-time contracts arise as a result of an employee making a successful application for a flexible pattern of work, or they may be negotiated as an alternative to redundancy. The employment of part-time workers is regulated by the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000/1551), which were enacted to comply with the Directive on Part-time Work (97/81/EC). Under the Regulations, part-time workers must not be treated less favourably than comparable full-time workers as regards the terms of their contract unless the employer can justify such less favourable treatment on wholly objective grounds. Part-time workers also have the right not to be subjected to any other detriment by any act, or failure to act, by the employer.

The Regulations apply not only to employees but also to workers who are not employees. Therefore they apply to workers employed under a contract of employment and to those who undertake to do or perform personally any work or service for an employer, regardless of the nature of the contractual relationship between them and the employer. However, the Regulations do not apply to people who are genuinely self-employed. Workers are full-time workers if they are paid wholly or in part by reference to the time that they work and are customarily identifiable as full-time workers in the organisation in which they work. A "part-time worker" is a person working in the same organisation who is generally considered to be in part-time work.

Prior to the coming into effect of the Regulations, part-timers could seek equal treatment with full-timers only by using the sex discrimination and equal pay laws of the UK and the EU. These laws continue to be relevant but the Regulations allow part-timers to obtain pro rata equality with full-timers without first proving that the disparity is based on sex.

See Atypical workers > Part-time workers for full details of part-time workers' rights under the Regulations.

Additional resources on part-time contracts

FAQs

Policies and documents

Job-sharing

On the face of it, job-sharing arrangements resemble standard part-time contracts, but there are key differences. If a full-time post is split into two separate part-time posts, the incumbents are independent of each other. If one part-time employee leaves this has no knock-on effect on the other. One position may become redundant without the other being affected.

However, with a job-share arrangement, the job is not separated into two parts. Instead, two employees share the duties of the job and undertake its functions. The arrangement requires that there are two suitable employees available. This can create problems for the employer if one half to the job-share agreement resigns or is dismissed.

Job sharers are part-time workers and are protected against discrimination under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000/1551). Under the Regulations, part-time workers must not be treated less favourably than comparable full-time workers as regards the terms of their contract unless the employer can justify such less favourable treatment on wholly objective grounds. Part-time workers also have the right not to be subjected to any other detriment by any act, or failure to act, by the employer. See Atypical workers > Part-time workers for full details of part-time workers' rights under the Regulations.

The job-sharing contract should make clear: how the duties will be organised; the hours of work; any handover provisions; whether or not the sharers must cover for each other during holidays and other absences; and how the employer will deal with bonuses.

A job-share contract should also make clear that the contracts are interdependent and specify the impact on the remaining job-sharer if one of them resigns or is dismissed. The contract might include a flexibility clause requiring the remaining employee to revert to full-time working. The employer must exercise this flexibility in a reasonable manner. Further, the remaining job-sharer may be unable to work full time and this will create further problems for the employer. It should take all reasonable steps to avoid having to terminate the employee's contract. It should, for example, attempt to recruit a replacement for the employee who has left, accommodate the remaining employee in the existing job on a part-time basis if possible or look for alternative work for him or her. Dismissal should be a last resort. An employer that dismisses an employee in these circumstances risks claims of unfair dismissal and indirect sex discrimination and claims under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000.

Additional resources on job-sharing

Policies and documents

Line manager briefings

Annualised hours

Under an annual hours contract the employee agrees to work for a specified number of hours a year. Annual hours contracts afford employers considerable flexibility in how they schedule work and reduce the need to make overtime payments. They can give employees a degree of freedom to have lengthy work-free periods to pursue other interests and to travel. The employment contract continues during the periods when the employee is not working and he or she maintains continuity of employment and accrues benefits such as paid leave under the Working Time Regulations 1998 (SI 1998/1833).

An annual hours contract could be completely flexible, with the employer being able to require the employee to work whenever needed. However, this is unusual. It is more common for some of the hours to be fixed or rostered and others to be kept in reserve until the employer needs the employee to work them. The split between the rostered and reserved hours should be clearly set out in the written statement of terms and conditions of employment, together with the procedure that the employer will follow when it requires the employee to work the reserved hours.

Employers should also make clear the arrangements that apply in relation to, in particular, annual leave, hours of work, provisions relating to sickness absence, frequency of payment and terms relating to overtime payments (ie at what stage the rate of overtime will apply).

Annual leave entitlement under the Working Time Regulations 1998 does not have to be taken during rostered hours (Russell and others v Transocean International Resources Ltd and others [2011] UKSC 57 SC) although employers should identify in the contract the period during which leave can be taken.

The bunching of annual hours into short periods can result in an employee exceeding the limit on working time under the Regulations. Adult workers (ie workers aged 18 and over) cannot lawfully be required to work more than an average of 48 hours a week calculated over a rolling (or static) reference period of 17 consecutive weeks. The reference period may be extended to a maximum of 52 weeks under the terms of a collective or workforce agreement. Employees can opt out of the working time limit. (See Working time > Hours of work for further details on the statutory provisions relating to working hours.)

Additional resources on annualised hours

FAQs

Policies and documents

"How to" guidance

Term-time only contracts

Under a term-time only contract, the employee works only during the periods that coincide with school terms and is not required to work during school holidays. Term-time only contracts are common in the education sector.

A typical reason for employees to choose to work term time only is so that they can meet childcare demands. Employers may offer term-time working to aid recruitment and retention.

Although employees who are employed on a term-time basis work for only part of the year, they remain employees throughout the whole year and the whole year counts toward their continuity of employment. Payment may be by 12 monthly or 52 weekly equal instalments, with the pay for the term-time periods of work spread out over the calendar year. Alternatively, a term-time employee may be paid only during the periods of actual work (and during annual leave).

Term-time work is effectively a form of part-time working and, under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000/1551), employees who work on this basis are entitled to the same terms and conditions as full-time employees, on a pro rata basis (see Atypical workers > Part-time workers for full details of part-time workers' rights under the Regulations).

Terms of employment should make clear the benefits to which the employee is entitled and how they will be calculated. The working arrangements, in particular when the employee is required to work, and any requirements regarding when the employee may and may not take annual leave, should be specified in the written statement of terms and conditions of employment.

Additional resources on term-time only contracts

FAQs

Policies and documents

Casual contracts and zero hours contracts

Casual contracts and zero hours contracts are agreements under which individuals are not contracted to work a set number of hours. Further, they are paid only for the hours actually worked. These types of contract are typically used by employers where the demand for work is unpredictable and fluctuating, in sectors such as agriculture, hospitality and care (eg "bank" nursing staff).

Other than in the context of the unenforceability of exclusivity terms in zero hours contracts (see Unenforceability of exclusivity terms in zero hours contracts), casual and zero hours contracts are not legally defined and these terms are commonly used to describe contracts under which an individual works on an "as and when" basis. The term "casual contract" may be used interchangeably with "zero hours contract" and in many cases there is little to distinguish them. However, sometimes the drafting of a zero hours contract will differ from that of a casual contract. Although, like a casual contract, a zero hours contract will usually not guarantee work for the individual concerned, it may require him or her to carry out work when it is available. Casual contracts typically impose no obligation on the employer to offer work, nor on the individual to accept work.

Although casual contracts and zero hours contracts may appear to offer a welcome degree of flexibility for employers, arrangements of this nature can result in uncertainty about the employment status of the individuals engaged under them. They may seek to argue that there is sufficient mutuality of obligation to establish an employment relationship (see Contracts of employment > Determining employment status > Essential requirements of employment) and the employment rights and protections that go with it (for example, the right to bring a claim for unfair dismissal if the individual has sufficient service).

In the event of a dispute about employment status, an individual who is required to be available to work the hours that are offered (ie typically under a zero hours contract) may, in certain circumstances, be able to demonstrate in an employment tribunal that there is mutuality of obligation between the parties even though mutuality might not be apparent.

In Wilson v Circular Distributors Ltd [2006] IRLR 38 EAT, Mr Wilson had a contract as a relief manager that in form and content resembled an employment contract. He had to do the work that the employer required but the contract also provided that "there is no payment when work is not available". The employer argued (and the tribunal agreed) that this meant that it did not have to provide work. The Employment Appeal Tribunal (EAT) had a different interpretation. It said that it meant only that there might not always be work, but that, if there was, the employer would provide it. As there was mutuality of obligation, the contract was one of employment. There had in fact been work, but it had not been allocated to Mr Wilson. This was a breach of contract enabling Mr Wilson to claim unfair constructive dismissal.

If an individual has accepted all the work offered (whether or not he or she was obliged to do so under the agreement concerned) an employment tribunal may take a pragmatic approach and find that mutuality of obligation exists and that an employment relationship is established under an overarching or "umbrella" contract. Under an umbrella contract, a contractual framework remains in place between the employer and the individual during periods where no work is provided, and employment rights could be accruing.

However, although the Lords have accepted that an umbrella contract could occur (Lewis v Surrey County Council [1987] IRLR 509 HL), in practice they are rarely found. In Carmichael and another v National Power plc [2000] IRLR 43 HL, the Lords decided that power station guides employed on an "as and when required" basis did not have a continuing contract. They emphasised that one of the key requirements of a contract is the undertaking to work. The guides were allowed to turn down work and had done so. Conversely, in St Ives Plymouth Ltd v Haggerty EAT/0107/08, the EAT upheld an employment tribunal finding that, even though there was no duty to provide work or to perform the work offered, there was sufficient mutuality of obligation for an umbrella or overarching contract to be implied.

Where an umbrella contract cannot be shown, the individual may be able to argue that the gaps between periods of employment amount to a "temporary cessation of work" under s.212(3)(b) of the Employment Rights Act 1996 and count towards continuity of employment. In Cornwall County Council v Prater [2006] IRLR 362 CA, the claimant did not try to claim that apparently separate contracts came under one umbrella contract as had been done in Lewis and Carmichael. Instead, she argued that all her separate contracts were individual employment contracts and that the gaps between them were temporary cessations of work, which would give her continuous employment from the first day of her first contract. The Court of Appeal accepted her argument. It should be noted that the employee had never turned down any work offered. If she had, this would have broken her continuity of employment.

Whether the contract is a zero hours contract or a casual contract, in the event of a dispute about employment status the employment tribunal will look beyond the express terms of the agreement. If it finds that, in reality, there is mutuality of obligation, it may find employment status. Therefore, if an employer is likely to offer regular periods of work to an individual, particularly where he or she is obliged to undertake the work (ie typically under a zero hours agreement) it should consider accepting that employment status will apply from the outset.

Under s.27A(4) of the Employment Rights Act 1996, which came into effect on 26 May 2015, the determination of employment status is unaffected by the fact that exclusivity clauses in zero hours contracts are unenforceable (see Unenforceability of exclusivity terms in zero hours contracts).

Casual contracts and zero hours contracts are part-time contracts, and an employee on such a contract will need to identify a comparator to take advantage of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000/1551) (see Atypical workers > Part-time workers). The European Court of Justice in Wippel v Peek & Cloppenburg GmbH & Co KG [2005] IRLR 211 ECJ decided that an "on demand" contract differed from a full-time contract. However, the EAT in Roddis v Sheffield Hallam University [2018] IRLR 706 EAT held that the employment tribunal had been wrong to find that Wippel meant that the claimant, a lecturer employed on a zero-hours contract, could not compare himself to a full-time lecturer.

There is also a possibility that the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (SI 2002/2034) (see Atypical workers > Fixed-term workers > Fixed-term Employees Regulations) could apply where an individual satisfies the employment status test and is engaged on a series of separate "casual" assignments. If the Regulations do apply, he or she will have the right not to be treated less favourably than a comparable permanent employee in relation to benefits and access to training and promotion opportunities. However, he or she may be unable to find a comparable permanent employee on whom to base the claim and the employer may be able to justify objectively any differences in treatment.

On 15 October 2015, the Government published Zero hours contracts: guidance for employers, which, among other things, sets out examples of when it might be appropriate to use a zero hours contract.

Unenforceability of exclusivity terms in zero hours contracts

Under s.27A of the Employment Rights Act 1996, clauses in zero hours contracts that prohibit workers from working or performing services under another contract or arrangement or that prohibit workers from doing so without consent (ie exclusivity terms), are unenforceable (s.27A(3)). Section 27A was inserted into the 1996 Act by provisions in s.153 of the Small Business, Enterprise and Employment Act 2015, which came into force on 26 May 2015.

A "zero hours contract" is defined for these purposes as a contract under which an undertaking to do or perform work or services is conditional on the employer making work or services available but where the availability of work or services is not certain (s.27A(1)). Section 27A(2) specifies that an employer makes work or services available to a worker if it requests or requires him or her to do the work or perform the services.

Under s.27A(4) of the 1996 Act, the fact that s.27A(3) renders exclusivity terms unenforceable is not to be taken into account when determining a zero hours worker's employment status.

Section 153 of the 2015 Act also inserted a new s.27B into the 1996 Act, giving the Secretary of State a power to make Regulations to prevent zero hours workers from being restricted by contractual provisions from doing work outside their contract of employment. Regulations introducing protection against detrimental treatment and unfair dismissal for breaching exclusivity terms, came into force on 11 January 2016 (see Protection for breaching exclusivity terms in zero hours contracts).

Protection for breaching exclusivity terms in zero hours contracts

From 11 January 2016, zero hours contract workers have the right not to be subjected to a detriment by their employer for breaching an exclusivity term (reg.2(2) and (3) of the Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015 (SI 2015/2021)). A detriment is an act, or deliberate failure to act, done by the employer and includes being unfairly penalised or disciplined.

Under reg.3 of the 2015 Regulations, a worker who is subjected to a detriment may bring a claim in the employment tribunal. The claim must be brought within three months of the detrimental treatment complained of although the tribunal can hear a claim that is outside this time limit if it is just and equitable to do so.

The burden of proof is with the employer to identify the grounds for the detrimental treatment.

Under reg.4, if the employment tribunal finds the claim well founded, it must (if it considers it just and equitable to do so), make a declaration to that effect and order the employer to pay compensation. The amount of compensation is what the tribunal considers just and equitable in the circumstances, having regard to the employer's default and the loss sustained by the worker.

If an employee who works under a zero hours contract is dismissed and the reason or principle reason for the dismissal is that he or she breached an exclusivity term, the dismissal will be automatically unfair for the purposes of part 10 of the Employment Rights Act 1996 (reg.2(1) and (3) of the Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015) (see Termination of employment > Unfair dismissal).

Additional resources on casual contracts and zero hours contracts

FAQs

Policies and documents

"How to" guidance

Secondment

Under a secondment agreement, an employee is loaned by his or her employer to another part of the same organisation, another organisation in the group or an external organisation. During the period of secondment, the employee remains employed by the original employer. He or she does not transfer employment to the host employer or department.

Secondment may be used for a number of reasons, for example to enable the employee to learn new skills, for the host to benefit from the services of a skilled employee without having to employ one or to set up a joint venture without the need to recruit.

Whether or not an arrangement is a true secondment depends on the terms of the contracts between the employer and the host and the employer and the secondee, and the way that the secondee is treated. An employer that wishes to ensure that a secondee remains in its employment (rather than becoming an employee of the host) should retain and exercise as many employment powers as it can and ensure that the employment relationship is reflected in the contract between it and the host.

Secondments should not be permanent or lengthy. If a secondment is to be long term, it should be reviewed regularly.

To reduce the likelihood of uncertainty and conflict, employers should make clear in an agreement between the parties to a secondment arrangement:

  • that the secondee will remain an employee of the original employer;
  • the work to be undertaken;
  • the place of secondment;
  • terms relating to the hours of work, wages, benefits and annual leave arrangements;
  • requirements regarding confidentiality and intellectual property;
  • that the secondee will carry out the lawful instructions of the host;
  • how the secondee will be appraised and by which party;
  • relevant policies and procedures, with which the secondee must comply (for example policies on data protection, health and safety and dignity at work);
  • the arrangements for terminating the secondment; and
  • the secondee's position when the secondment ends (ie whether or not the original employer will hold a position open for him or her and the terms relating to that position).

Terms concerning the work itself and the place and hours of work, will be based on the agreement with the host, which must be able to protect its property and give instructions to the employee. Control over terms relating to pay, sickness absence, holiday (including the timing of holiday) and other benefits should remain with the original employer. Appraisals will require input from the host, which may need to be involved in setting targets and assessing performance, but the original employer should normally retain overall responsibility. It should also retain control over discipline, dismissal and grievances and, although input from the host may be necessary, the decision should ultimately be the employer's.

Termination of a secondment is distinct from the termination of employment. The host, employer and secondee have the right to terminate the secondment. Requirements relating to the period of notice and grounds for termination should be made clear in the agreement. Statutory minimum notice requirements do not apply because only the secondment, rather than employment, is terminated. In most circumstances, the host will have the right to remove the secondee from the premises, without notice. The secondee and employer also have the right to terminate the employment (subject to the usual employment rights). Statutory and/or contractual notice will apply. The parties to a secondment agreement need to take care, when ending it, that they do not breach the agreement, or breach the duty of mutual trust and confidence, as this could amount to a constructive dismissal.

The host and the original employer should agree terms relating to the reimbursement of wages and other costs and insurance. Both the host and employer could be liable for negligence by the seconded employee.

Additional resources on secondment

Policies and documents

"How to" guidance

Employee-shareholder contracts

Employee-shareholder status was introduced on 1 September 2013. The main provisions relating to employee shareholders are in s.205A of the Employment Rights Act 1996, which was inserted by s.31(1) of the Growth and Infrastructure Act 2013.

Individuals engaged under an employee-shareholder contract entered into prior to 1 December 2016 (or prior to 2 December 2016 where the individual received independent legal advice on 23 November 2016 but before 1.30pm, about entering into an employee-shareholder agreement) benefit from tax advantages on shares worth between £2,000 and £50,000 that they receive from their employer. In exchange, they will have surrendered certain employment rights. It should be noted that not all employees who have shares in their employer's company are employed under an employee-shareholder contract. For employee-shareholder status (with the tax benefits and loss of employment rights that go with it) to apply, specific conditions must be met. If an employee shareholder subequently sells his or her shares, he or she will retain the status of employee shareholder.

The Government has published Guidance on employee shareholders.

The Government intends to abolish employee-shareholder status. The tax advantages for shares granted in connection with employee-shareholder status have ended for new arrangements entered into on or after 1 December 2016 (2 December 2016 where the individual received independent legal advice on 23 November 2016 but prior to 1.30pm, about entering into an employee-shareholder agreement).

Conditions for employee-shareholder status to apply

For an employee-shareholder contract under s.205A of the Employment Rights Act 1996 to have been formed, a number of conditions must have been met. These are set out below:

  • The individual and the company had to agree that the individual was an employee shareholder (s.205A(1)(a)).
  • The company had to issue or allot to the individual shares in the company (or procure the issue or allotment of shares in its parent company) that were fully paid up. These shares had to be worth at least £2,000 on the day that the company issued or allotted them to the individual (s.205A(1)(b)).
  • The individual must have given no consideration other than by entering the agreement to be an employee shareholder (ie he or she must not have been required to give anything else in return for the shares) (s.205A(1)(d)).
  • Before the agreement was made between the company and the individual that he or she would be an employee shareholder, the company had to give the individual a written statement concerning employee-shareholder status and the rights attached to the shares (s.205A(1)(c) and (6)(a)). The statement had to comply with the requirements of s.205A(5) (see The written statement).
  • Before the agreement was made between the company and the individual that he or she would be an employee shareholder (and having been given the written statement under s.205A(1)(c)), the individual must have received advice from a relevant independent adviser about the terms and effect of the agreement (s.205A(6)(a)). At least seven days must have passed between the individual receiving that advice and then agreeing to be an employee shareholder (s.205A(6)(b)).
  • The company had to meet any reasonable costs that the individual incurred obtaining the advice from the independent adviser (s.205A(7)). (This requirement applied whether or not the individual subsequently became an employee shareholder.)

All the above conditions must have been met for employee-shareholder status to apply.

"Company" is defined in s.205A(13) and includes an overseas company. The value of the shares for determining whether or not the £2,000 threshold was met, means their market value according to ss.272 and 273 of the Taxation of Chargeable Gains Act 1992.

The definition of "relevant independent adviser" for the purpose of advice on the written statement is the same as that for the purpose of advice about settlement agreements (see Employment tribunals and dispute resolution > Alternative methods of dispute resolution > Settlement agreements (and pre-termination negotiations).

Employment rights surrendered

Under s.205A(2) of the Employment Rights Act 1996, employee shareholders surrender certain employment rights, namely the right:

In relation to the right not to be unfairly dismissed, only the right to claim "ordinary" unfair dismissal is surrendered. Where the dismissal is for a reason that is automatically unfair (see Termination of employment > Unfair dismissal > Automatic unfair dismissal), in connection with medical suspension or in breach of the Equality Act 2010 (ie it amounts to unlawful discrimination because of a protected characteristic) the employee shareholder may bring a claim against the employer for unfair dismissal.

Employee shareholders are also able to bring claims under the Equality Act 2010. Therefore, if an employer rejects, or refuses to consider, a female employee shareholder's application for a flexible pattern of work under s.80F of the Employment Rights Act 1996, she may be able to bring a claim for indirect sex discrimination on the basis that more women than men need to adopt flexible working arrangements due to childcare responsibilities.

Employee shareholders who wish to return early from maternity or adoption leave must give their employer at least 16 weeks' notice of their early return, as compared with eight weeks for other employees (s.205A(3) and (4) of the Employment Rights Act 1996).

The written statement

One of the conditions that must be met for an individual to be an employee shareholder is that, before the agreement was made between the company and the individual that he or she would be an employee shareholder, the company had to give the individual a written statement concerning employee-shareholder status and the rights attached to the shares (s.205A(1)(c) and (6)(a) of the Employment Rights Act 1996). Section 205A(5) sets out the requirements of the written statement. The written statement must:

  • state that, as an employee shareholder, the individual will not have the rights listed in s.205A(2) (see Employment rights surrendered);
  • specify the notice periods that apply under s.205A(3) to return early from maternity and adoption leave (see Early return from family-related leave);
  • state whether or not voting rights attach to the shares and if they carry rights to dividends;
  • state whether or not, in the event that the company is wound up, the shares will confer any rights to participate in the distribution of surplus assets;
  • where there is more than one class of shares, explain any differences in voting rights and the right to participate in the distribution of surplus assets attached to the employee-shareholder shares and the equivalent rights attached to the largest class of shares (or next largest class where the employee shares are in the largest class of shares);
  • state whether or not the shares are redeemable and, if they are, at whose option;
  • state whether or not the transferability of shares is restricted, and if it is, what the restrictions are;
  • state whether or not any of the requirements of ss.561 and 562 of the Companies Act 2006 (concerning existing shareholders' right of pre-emption) are excluded in relation to the shares; and
  • state whether or not the shares are subject to drag-along rights or tag-along rights, and if they are, explain the effect of this.

"Drag-along rights" means the right of holders of the majority of the shares and who are selling their shares to require minority shareholders also to sell their shares. "Tag-along rights" means the right of minority shareholders to sell their shares on the same terms as those that apply to the holders of the majority of the shares (where they are selling them).

Tax advantages

Where an employee shareholder makes a profit on the disposal of shares that were acquired on entering into an employee-shareholder contract, there is an exemption from capital gains tax. However, the exemption applies only to profits made on shares worth up to £50,000.

There are also exemptions from income tax and national insurance contributions but this is on only the first £2,000 worth of shares.

See Pay and benefits > Basic pay and benefits > Employee-shareholder contracts for more details on the tax advantages.

The tax advantages of employee-shareholder status have been abolished for new arrangements (see above).

Protection for refusing to agree to employee-shareholder status

Employees have the right not to be subjected to a detriment by their employer for refusing to accept an offer to become an employee shareholder (s.47G of the Employment Rights Act 1996, inserted by s.31(2) of the Growth and Infrastructure Act 2013). A detriment is an act, or deliberate failure to act, done by the employer and includes being unfairly penalised or disciplined.

If an employee is dismissed for refusing to accept an offer to become an employee shareholder, the dismissal will be automatically unfair (s.104G of the 1996 Act, inserted by s.31(4) of the 2013 Act) (see Termination of employment > Unfair dismissal).

Volunteers

There is no legal definition of "volunteer". Volunteers are individuals who offer their skills or labour to an organisation (usually in the public or third sector) in return for no payment.

In the event of a dispute, an individual may challenge his or her volunteer status, and argue that the arrangement in question constitutes an employment contract and that he or she has employment rights.

To establish whether or not an individual is a volunteer rather than an employee, it is necessary to measure the purported volunteer arrangement against the key elements of an employment contract. The essential elements of employment are:

  • the existence of a contract;
  • that the work is done in person;
  • that mutuality of obligation exists; and
  • that there is control over the work that the individual is doing.

The areas of uncertainty in relation to volunteers are whether or not there is mutuality and if there is a contract. In a volunteering arrangement, it would be unusual for the organisation not to control the work or for the volunteer to be able to send in a substitute.

In Armitage v (1) Relate (2) Heller (3) National Relate [1994] IT/43538/94, the industrial tribunal held that a volunteering agreement would have been a binding contract. However, in some cases, volunteers have been found not to have a contract and not to be employees. For example, in Melhuish v Redbridge Citizens' Advice Bureau [2005] IRLR 419 EAT, the Employment Appeal Tribunal considered the position of an unpaid adviser at a Citizens' Advice Bureau. Mr Melhuish was requested to work two days a week, but was not required to do so, and he could select his working days. He had to meet required standards and follow the Citizens' Advice Bureau's policies and procedures. The Citizens' Advice Bureau was not bound to provide work. The Citizens' Advice Bureau benefited from Mr Melhuish's work and, although he was not required to attend training courses, it was open to him to do so. There was no mutuality of obligation. Mr Melhuish did not have to work and the Citizens' Advice Bureau did not have to provide work. The lack of duties in relation to the provision and performance of work meant that there was no contract, and certainly no contract of employment. The only possible contract was one to reimburse expenses.

Although it is not possible to guarantee that a volunteer agreement does not amount to an employment contract, there are measures that organisations can take to increase the likelihood that individuals whom they intend to be volunteers will be held to be so, and will not be found to be employees instead:

  • The agreement, which should be simple and in writing, should be referred to as a "volunteer agreement", rather than a "contract".
  • Volunteers should have the freedom not to work and to refuse training, and duties and benefits should not be fixed or mandatory as this may indicate a contract. However, organisations do have the right to ensure that volunteers have the necessary skills to be of use to them.
  • Volunteering arrangements should not reflect the terms of employment. For example, volunteers should be entitled to be reimbursed for their expenses, but not paid for work done. The disciplinary and grievance procedures should not apply to volunteers, nor should holiday or sickness payments or other benefits. However, the organisation can insist that volunteers comply with key policies, for example on health and safety, dignity at work and confidentiality.
  • The agreement should stipulate that there is no intention for it to be legally binding.

A requirement to carry out a criminal records check will not affect volunteer status.

Equality

Section 39 of the Equality Act 2010 prohibits discrimination against applicants for employment and individuals who are in employment. Under s.83(2)(a), "employment means employment under a contract of employment, a contract of apprenticeship or a contract personally to do work". Whether or not a volunteer satisfies the definition of employment is key to determining if he or she is protected against discrimination by the Act. In Breakell v Shropshire Army Cadet Force EAT/0372/10, the Employment Appeal Tribunal confirmed that a paid volunteer was not an employee for the purposes of the Disability Discrimination Act 1995 (which the Equality Act 2010 repealed and replaced) where there was no mutuality of obligation between the parties. Further, in X v Mid Sussex Citizens Advice Bureau and another [2013] IRLR 146 SC, the Supreme Court upheld a Court of Appeal decision (X v Mid Sussex Citizens Advice Bureau and others [2011] EWCA Civ 28 CA) that an unpaid voluntary worker without a legally binding contract was not protected by the Disability Discrimination Act 1995 and that the Equal Treatment Framework Directive (2000/78/EC) does not extend to volunteers.

National minimum wage

An exemption from entitlement to the national minimum wage applies to volunteers engaged by certain types of organisation (see Pay and benefits > The national minimum wage > Eligibility for the national minimum wage).

Additional resources on volunteers

Policies and documents

Apprenticeship contracts

The Apprentices, Skills, Children and Learning Act 2009 makes provision for apprenticeships in England and Wales. Following the coming into force of the relevant provisions of the Act, there is now a distinction between:

  • an "apprenticeship agreement" under the 2009 Act; and
  • a "traditional" contract of apprenticeship, which is governed by common law and specifically included within the definition of a contract of employment in s.230(2) of the Employment Rights Act 1996.

Apprenticeship agreements between employers and apprentices must comply with certain requirements of the 2009 Act, which defines the circumstances in which a person completes an apprenticeship under an "apprenticeship standard" or "apprenticeship framework".

In England, approved apprenticeship standards are replacing apprenticeship frameworks, which are being phased out. From 26 May 2015, s.A1 of the Apprentices, Skills, Children and Learning Act 2009 (which was inserted by part 1 of sch.1 to the Deregulation Act 2015), sets out the meaning and requirements of an "approved English apprenticeship agreement" under which an apprentice in England agrees to carry out work for an employer. The agreement must:

  • provide for the apprentice to work for reward in a sector for which there is an approved apprenticeship standard;
  • provide for the apprentice to receive training to assist him or her to achieve the approved apprenticeship standard in the work done under the agreement; and
  • satisfy any other conditions that the Government specifies in regulations (although it has not yet issued any such regulations).

Apprenticeship frameworks apply in Wales (but are being phased out in England). For an apprenticeship to fall within an "apprenticeship framework", it must comply with the requirements of an apprenticeship agreement in s.32 of the Apprentices, Skills, Children and Learning Act 2009. Section 32 of the Act (which applies to Wales and applied to England prior to 26 May 2015 and the introduction of apprenticeship standards (see above)) sets out the meaning and requirements of an apprenticeship agreement under which an apprentice agrees to undertake work for an employer. Under s.32, the apprenticeship agreement must, among other things, be in a prescribed form. The Apprenticeships (Form of Apprenticeship Agreement) Regulations 2012 (SI 2012/844), which came into force on 6 April 2012, set out that (other than in limited cases) the prescribed form is a written statement of employment particulars given to an employee under s.1 of the Employment Rights Act 1996 or a written contract of employment or letter of engagement that satisfies the requirements of written statements (see Contracts of employment > Written statement of employment particulars). The apprenticeship agreement must also include a statement of the skill, trade or occupation for which the apprentice is being trained.

Traditional apprenticeships are a special form of employment contract:

  • The contract can be with the employer or an individual person in the organisation. If the individual leaves the organisation, this is a breach of contract - but a transfer to another person is usually arranged.
  • If the business changes and the employer/individual can no longer train in the area concerned, this will also be a breach of contract.
  • It is more difficult to dismiss an apprentice than a typical employee. Continual neglect of duties or failure to participate in training may suffice as a reason for dismissal. Occasional insubordination will not.
  • If an apprentice contract is broken the apprentice is entitled to remuneration and benefits to the end of the apprenticeship and also to damages for the employer's failure to train, which could have a long-term effect on the apprentice's wages and increase the damages. In Dunk v George Waller and Son [1970] 2 All ER 630 CA the court awarded Mr Dunk the difference between the wage that he would have earned had he completed his apprenticeship and his actual wage until the time when his untrained colleagues would be able to earn the same wage as Mr Dunk would have been earning had he completed his apprenticeship.
  • The employer has undertaken to train the apprentice. This means that, save in exceptional circumstances, the apprentice cannot be made redundant (Whitely v Marton Electrical Ltd [2003] IRLR 197 EAT). This was also amply illustrated in Wallace v C A Roofing Services Ltd [1996] IRLR 435 HC. Mr Wallace was purportedly dismissed for redundancy 19 months into a four-year agreement. The High Court held that this course of action was not open to the employer and made clear that, in the case of a contract of apprenticeship, the ordinary rules on dismissal are inapplicable, save possibly in the case of closure or a fundamental change in character of the enterprise.

An apprentice is an employee whether the arrangement is an apprenticeship agreement under the Apprentices, Skills, Children and Learning Act 2009 or a traditional apprenticeship contract. However, termination of the contract of apprenticeship before the expiry of its term is treated differently. An apprenticeship agreement is regarded as a contract of service only (rather than a contract of apprenticeship). Therefore, the normal breach of contract and unfair dismissal considerations apply. Conversely, as set out above, under a traditional contract of apprenticeship the apprentice cannot be made redundant and early termination can result in the apprentice receiving an enhanced measure of damages by comparison with an ordinary employee. Further, a more serious level of misconduct is required to ground a dismissal, than would normally be the case.

Disputes over which type of apprenticeship is in force will be determined by the courts, but if an employer has not complied fully with the requirements of the Apprentices, Skills, Children and Learning Act 2009, the arrangement becomes by default a traditional contract of apprenticeship.

From 1 April 2017, it is an offence (under s.A11 of the Apprenticeships, Skills, Children and Learning Act 2009 (inserted by s.25 of the Enterprise Act 2016)), for training providers, in the course of business, to describe a course or training as an "apprenticeship" where the course or training is not a statutory apprenticeship. However, the offence does not apply to employers providing a course or training to employees, under a contract of employment.

The Government introduced the apprenticeship levy on 6 April 2017 (see Pay and benefits > Pay As You Earn > Apprenticeship levy). It also made changes to how apprenticeships are funded. It has published Apprenticeship funding in England, which sets out how it funds apprenticeships in England. Separate arrangements apply in Scotland, Wales and Northern Ireland. See also the Government's Apprenticeship technical funding guide and Apprenticeship funding rules 2018 to 2019, which apply to apprenticeships starting on or after 1 August 2018.

Additional resources on apprenticeship contracts

FAQs

Policies and documents

"How to" guidance

Audio and video

Key references

Legislation

Employment Rights Act 1996
Apprentices, Skills, Children and Learning Act 2009
Directive on Part-time Work (97/81/EC)
Directive on Fixed Term Contracts (1999/70/EC)
Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000/1551)
Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (SI 2002/2034)
Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015 (SI 2015/2021)