Employment contracts: what you need to know as a new employer
For a startup, the task of hiring your first employee can be a daunting prospect. There is a vast amount of legislation surrounding the employment relationship, which can be difficult for an employer to contend with while also trying to run a business. In this article, I will focus on contracts of employment and answer some of the key questions employers have when it comes to this topic.
What are the different types of contract?
Firstly, it is important for the employer to decide on the type of employment contract that will best fit the needs of the company. An employer can provide a contract of indefinite duration (i.e. a contract with no end date) or a fixed term/specified purpose contract. I have set out below some further details on the above contracts and highlighted some of the pitfalls which employers should be aware of when using these types of contracts.
Contract of Indefinite Duration
This is a contract with no specified end date (often referred to as a permanent contract). A contract of this nature will not expire and will only cease in situations such as resignation, dismissal, redundancy, etc. However, when an employer gives this type of contract to an employee, they can include a probationary period (usually of six months’ duration, and not exceeding 11 months). The probationary period allows the employer to decide during this time if the employee meets the performance expectations of the role.
If this is not the case, the employer could look to terminate the employee during the probationary period. It is advisable to hold reviews with the employee during the probationary period to identify any areas of concern. Although an employee with less than one year’s service would not be in a position to take an Unfair Dismissals Claim, there is no service requirement with regard to taking a claim under the Employment Equality Acts 1998-2011. As such, employers should keep written records of any discussions had with the employee, in order to show that the decision to terminate the employment relationship during the probationary period was based on performance issues.
Fixed Term and Specified Purpose Contracts
The main advantage of fixed term or specified purpose contracts is that they allow for the termination of the contract once the fixed term or the specified purpose has been completed. Generally, a fixed term contract ends on an agreed date and this is stated in the contract. By contrast, a specified purpose contract is used in situations where the termination date is not definable in advance and is suitable in situations where a person is employed as a replacement for someone who is absent due to illness or maternity leave, or if someone is employed to work on a particular project.
Employers should ensure that they fully understand the rights of employees on fixed term or specified purpose contracts, as set out in the Protection of Employees (Fixed Term Work) Act, 2003. It is important to note that if an employer wishes to renew an employee’s fixed-term/specified purpose contract that they must provide the employee with a written statement, no later than the date of renewal, setting out the objective grounds justifying the renewal and the reasons why the company was unable to offer a contract of indefinite duration.
In addition, there are some limitations on the use of fixed-term/specified purpose contracts and if an employee has been employed on two or more continuous fixed-term contracts, then the total duration of those contracts may not exceed four years. After this, the employee becomes entitled to a contract of indefinite duration unless the employer can justify a further fixed term contract being issued on objective grounds. The Unfair Dismissals Act 1977-2015 also contains a provision to prevent the abuse of fixed-term contracts by employers. The Act provides that where a fixed-term or specified purpose contract expires and the individual is re-employed within three months, the individual is deemed to have continuous service. However, the Workplace Relations Commission* may even look beyond this three month threshold if they feel that the employer’s aim in breaking the employee’s service was to avoid the legislation.
What needs to be included in a contract of employment?
The contract should include the main terms and conditions of employment. The Terms of Employment (Information) Acts 1994–2014 lists all of the specific terms and conditions which must be included in the employment contract such as:
- name of the employer and employee
- the address of the employer
- the place of work or, if there is no fixed or main place of work, a statement that the employee is required or permitted to work at various places
- job title or the nature of the work
- the date of commencement of the contract
- for temporary contracts, the expected duration of the contract or, if for a fixed term, the date on which the contract expires
As above, there are some terms and conditions that an employer must include in a contract. However, an employer should also consider placing some other clauses in the contract which may assist them in the running of their business, for example probation, retirement, or lay off/short time working clauses. Taking probation as an example, it may be very useful for a new business to have a probationary period included in their contract, as it will allow them greater flexibility when managing the performance of a new employee and assessing if they are the right fit for the company.
When do I issue an employment contract?
The Terms of Employment (Information) Acts 1994–2014 provides that an employer is obliged to provide an employee with a written statement of terms of employment within the first two months of the commencement of employment. The contract must be signed and dated by – or on behalf of – the employer. The employee should also be requested to sign the contract. A copy of the contract must be retained by the employer during the employment and for a period of one year after the end of the employment.
Employers should be mindful that it they do not issue their employee with a contract, the Workplace Relations Commission can award four weeks pay to an employee.
Do I need to have a Company Handbook?
It is best practice to also issue an employee with a Company Handbook. The handbook should outline the standards of conduct and safety, company regulations and the administrative procedures used to facilitate the efficient running of the organisation. Employers should require employees to acknowledge (in writing) that they have received the handbook, that they have read it and understand its contents. Company handbooks should be checked regularly and updated where required. Employees should be informed of any updates to the handbook and these should be circulated.
There are two policies which must be provided to an employee within 28 days of them starting in the company; the grievance and disciplinary policies. The Workplace Relations Commission has developed a Code of Practice which is a useful resource for employers when drafting these policies. These codes of practice are available on the Workplace Relations Commission website.
To conclude, the importance of a contract of employment cannot be understated. It is the document which forms the basis of the relationship between the company and their employees and it will be used as the main source of reference if any disputes should arise. With this in mind, it is very clear that an employer should carefully develop their contracts of employment to ensure that they have met their obligations under the legislation and that the contracts fit the needs of the company.
* The Workplace Relations Commission (WRC) was established on 1 October 2015 under the Workplace Relations Act 2015. It has taken over the functions of the National Employment Rights Authority, the Labour Relations Commission and the Director of the Equality Tribunal. It has also taken over some of the functions of the Employment Appeals Tribunal (EAT).