An employment contract is a signed agreement between an employee and employer. It establishes both the rights and responsibilities of the two parties: the worker and the company.

What is Included in an Employment Contract

Also known as a contract of employment or employment agreement, an employment contract lays out the rights and responsibilities of both employer and employee. More specifically an employment contract can include:

  • Salary or wages: Contracts will itemize the salary, wage, or commission that has been agreed upon.
  • Schedule: In some cases, an employment contract will include the days and hours an employee is expected to work.
  • Duration of employment: An employment contract will specify the length of time the employee agrees to work for the company. In some cases, this might be an ongoing period of time. In other cases, it might be an agreement set for a specific duration. Other times, a minimum duration is laid out, with the possibility of extending that period.
  • General responsibilities: Contracts can list the various duties and tasks a worker will be expected to fulfill while employed.
  • Confidentiality: Although you may have to sign a separate non-disclosure agreement, sometimes a contract might include a statement about confidentiality.
  • Communications: If an employee’s role involves handling social media, websites or email, a contract might include a point that the company retains ownership and control over all communications.
  • Benefits: A contract should lay out all promised benefits, including, but not limited to, health insurance, 401k, vacation time, and any other perks that are part of the employment.
  • Future competition: Sometimes a contract will include a non-compete agreement(also known as an NCC). This is an agreement stating that, upon leaving the company, the employee will not enter into jobs that will put him or her in competition with the company. Often an employee will have to sign a separate NCC, but it also might be included in the employment contract.

Other possible terms include an ownership agreement (stating that the employer owns any work-related materials produced by the employee), information on solving disputes at work, or qualifications on where the employee can work after leaving the company (this is a way to limit competition between related companies).

Benefits and Drawbacks of a Written Employment Contract

A written contract is a great way to clearly define the job, your responsibilities, and your benefits. It prevents any confusion about the job.

However, be sure to carefully read all elements of an employment contract before signing it. Make sure that you are comfortable with every part of the contract. If you break the contract, there might be legal consequences. Therefore, make sure you are able to uphold every part of the written agreement. For example, if the contract requires you to stay at the job for a minimum period, make sure you will be able to do this. Also, if the contract places limits on where you can work upon leaving the company, consider whether or not you are comfortable with this.

Implied Employment Contracts

An implied employment contract is one that is inferred from comments made during an interview or job promotion, or from something said in a training manual or handbook. For example:

  • Implied contracts can be inferred from actions, statements, or past employment history of the employer.
  • An employee may have seen or recorded a history of promotions, raises, and annual reviews for themselves and their coworkers.
  • During an interview, a potential employee may be told that the employee’s job is a long-term or permanent position in place unless they are fired for a good reason.

Enforcing an Implied Contract

While implied contracts are difficult to prove, they are binding. Employees can prove that an implied contract was established by pointing out actions, statements, policies, and practices of the company that led them to believe with reasonable cause that the promise would come to fruition.

It is relationship that serves to underpin commercial life and activity in any market economy and as such it is hard to overstate its profound socio-economic significance. This short paper first considers the law relating to the duty of trust and confidence which is implied in every contract of employment, then examines the impact of that implied term in the context of dismissal.

The implied duty of trust and confidence

The duty of trust and confidence is imbedded into the contract of employment to ensure that each party to a contract of employment does not, without justification, behave in a manner that is likely to damage or destroy the crucial relationship of confidence and trust that should exist between an employer and an employee. For example, in Bliss v South East Thames Regional Health Authority , a demand that an employee submitted himself to a psychiatric examination was deemed to be an act calculated to destroy the said relationship of trust and confidence.

The duty overlaps and complements the concept of fair dealing owed by the employer.  This duty contributes little to the duty of fidelity that an employee owes to an employer and which overlays the employment relationship, in particular in light of the sensitive commercial information which may be at the disposal of the employee, but it is specified as a specific duty in light of the many scenarios that can bring it to the fore.

In practice the implied duty of trust and confidence probably more often litigated than the other implied terms in an employment contract. It is important to note that this is a mutual duty, meaning that both the employer and the employee are obligated to treat each other respectfully.  An employee must act properly in his dealings with or on behalf of his employer so as not to jeopardise the trust invested in him or her, and the employer most strike a balance between conducting its business as it sees fit, and safeguarding employee’s desire to be fairly and properly treated. There are many examples of what might constitute a breach of the duty of trust and confidence and some of these feature below:

  • Acts of deception by either party
  • Unreasonable demands by either party
  • Unauthorised communication of commercial information by the employee to a third party
  • False accusations by either party on the basis of little or no evidence
  • Publicly reprimanding an employee in front of other employees
  • Causing an employee to suffer psychiatric injury
  • Ignoring company disciplinary procedures
  • Unjustifiably restricting an employee’s authority
  • Persistent unwarranted criticism
  • Giving unjustified warnings in order to dishearten an employee and drive him or her out of employment.
  • A failure to investigate a justified complaint from an employee

A good example of the interpretation and application of this duty can be found in United Bank Ltd v Akhtar . In this case an employee was subject to a mobility clause which provided that he was liable to be transferred to any place in the United Kingdom in which his employer operated at short notice and with only the possibility of a discretionary relocation payment. It transpired that the employee was asked to move from Birmingham to Leeds with just a few days notice albeit the employer was aware the employee was suffering difficult personal circumstances. The court held that this amounted to a breach of the implied duty that employers will conduct themselves in a manner that does not harm the delicate relationship of trust and confidence.  It is submitted that it can be inferred that entailed in the discussed implied term is embedded an expectation that employers and employees will behave reasonably in regards to each other’s interests. Inter alia, repeated attempts to change an employee’s terms and conditions of employment were found to amount to a breach of the duty of trust and confidence in Woods v WM Car Services (Peterborough) Ltd

The duty of trust and confidence in the context of dismissal

In the case of a serious breach of the implied duty of trust and confidence employees may well be motivated to claim damages against their employer or more likely to use the breach as grounds for an action of constructive dismissal. On the other hand employers may be moved to cite such a breach either as a reason for the imposition of disciplinary action or to justify the dismissal of the employee. Where there has been a breach of implied duty of confidentiality an employer may also be moved to seek an injunction against the employee to prevent further breaches.

In the 2004 House of Lords case of Eastwood v Magnox Electric  the Law Lords endorsed the decision in Johnson v Unisys Ltd , in which the legal framework on unfair dismissal was deemed to constitute a comprehensive and complete code. The obvious inference to be drawn from this ruling is that employees are only entitled to bring common law claims for damages for breach of an implied term of trust and confidence in connection with the behaviour of their employer prior to dismissal.
The rationale behind this ruling is that claims in relation to dismissal itself can only be brought under the unfair dismissal scheme.

However, the Lords did state that the duty of trust and confidence should have as much bearing on an employer exercising his power to dismiss as it does when the employer carries on a continuing employment relationship. It is submitted that there is an anomaly or at least an inconsistency in the current law, given that there is a duty to act in good faith and with fairness in applying the implied duty in circumstances when an employer is deliberating as to whether to suspend an employee but not in circumstances when the employer is considering taking the more serious decision to dismiss the employee.

It is submitted that it would be a natural development of the implied duty of trust and confidence to incorporate within it an obligation only to dismiss employees fairly and in good faith. The Eastwood decision thus reopens the prospect of employees bringing common law claims seeking damages for unfair termination of their employment.