UK: Employment Law In England And Wales

Last Updated: 22 November 2011
Article by Charles Wynn-Evans and Kate Anderson

Introduction

For any business which has employees in England and Wales, a basic knowledge of employment law is vital. Knowing what your rights are, and the rights of your employees, will help prevent problems arising. Ignorance of the law will almost certainly cost you money and will do nothing to improve relations with your workforce.

This guide is intended to be a detailed introduction to the main issues and pitfalls faced by employers in England and Wales. It does not address the regimes in Scotland and Northern Ireland which differ in certain respects from the position in England and Wales.

As this guide is only intended to be an introduction to the area, it does not cover all the complexities of the legislation and case law which it addresses. You should take specific advice before you take action. The law is described as at 1 October 2011, so please bear in mind that it may have changed by the time you read it.

1. The Contract of Employment

Introduction

An employer may lawfully employ whom it wishes, subject to certain restrictions relating to the employment of children and young persons and work permit and immigration issues. An individual may, however, have a right of action under the United Kingdom's discrimination legislation if a decision not to employ the individual relates to one of the characteristics protected by the legislation such as, for example, the individual's race, sex, marital status, age, religion or belief, sexual orientation, disability or trade union membership.

Express Terms

In English law the employment relationship is constituted primarily by the contract of employment, which can be oral or written. The contract is formed when an offer is accepted or conditions to which an offer is made subject are satisfied. Employers should take care in formulating the terms and conditions upon which employment is offered, as seeking subsequently to impose additional terms or change existing terms can be problematic. The contents of the contract of employment are regulated in certain respects by way of minimum prescribed obligations–examples include rights to maternity and parental leave, the national minimum wage, the statutory minimum period of notice and rights in relation to holidays and working time. These minimum obligations are covered elsewhere in this guide.

Implied Terms

Whilst an employee's contract of employment will set out express terms relating to matters such as salary, place of work and hours of work, certain terms are implied into all employment contracts. Examples include:

  • the employee's duty to take reasonable care in performing his or her duties;
  • the employee's duty to comply with the employer's lawful and reasonable instructions;
  • the employee's duty of confidentiality;
  • the employer's responsibility to take reasonable care for the employee's safety; and
  • both parties' obligation to conduct themselves so as to maintain 'mutual trust and confidence'.

Changes to Terms and Conditions of Employment

Changing the terms and conditions of employees' employment can be problematic. Unless the change is already permitted by the scope of the contract (for example, changing the emphasis of a role within a widely defined job title) or there is an express power to change the contract (which must nonetheless be exercised on a legitimate basis), unilaterally imposing changes to a contract can entitle an employee to resign and claim constructive dismissal (which can lead to damages and/or unfair dismissal claims) or remain employed but bring a breach of contract action for damages in cases of changes to financial laws or refuse to comply with the conditions imposed by the employer. If an employee continues to work without protest following the imposition of changes to his or her contract, he or she may be taken to have accepted them, but much will depend on the circumstances.

2. Written Particulars of Employment

Legal Obligation

Employers are required by statute to provide to employees a written statement setting out certain 'particulars' of their terms and conditions of employment. The law does not prescribe the substantive content of those actual particulars of employment. The required particulars can be set out in a formal contract of employment or a written statement. They should be given in a single document but can cross-refer to other documents in respect of sickness and pension entitlements and disciplinary and grievance procedures. These should be reasonably accessible documents, the most obvious examples of which are a staff handbook and pension rulebook. For the purposes of certainty, notwithstanding this obligation to record written particulars, employers are best advised in any event to set out in writing all the detailed terms upon which they employ their employees.

Required Particulars

The particulars of employment which should be recorded in writing to comply with this legal obligation include the name of the employer and employee, the date employment began, the rate of remuneration (or method of its calculation), how often remuneration is paid, terms and conditions relating to hours of work, holidays, holiday pay, sick pay, pension schemes, notice entitlements, job title, term of employment (for example, if the employment is for a fixed term), place (or places) of work, details of disciplinary and grievance procedures and details of any collective agreements which affect the terms and conditions of the employee's employment. If there are no particulars applicable to the individual in relation to a particular item, this fact should be stated.

Timing

The written statement of particulars of employment must be given to the employee before the individual has been employed for two months. Any changes to the initial particulars must be confirmed in a further written statement given at the earliest opportunity (but no later than one month after the change takes effect). Employers should note, however, that simply notifying the employee of changes to the written particulars provided to the individual in order to comply with this notification obligation, does not of itself render them contractually effective.

Penalty

Absent another substantive employment claim, an employee's sole remedy for an employer's failure to provide accurate or complete particulars is to seek a declaration from the employment tribunal. The employment tribunal will make a declaration effectively as to the true contractual or factual position in relation to the relevant matter or matters. Where the employee succeeds with another substantive employment claim, if the employment tribunal finds that, as at the date the employee brought the claim, the employer had not complied with its duty to provide the requisite written particulars of employment, it will award the employee additional compensation of either two or four weeks' pay (capped at the statutory maximum, which is currently £400 a week).

3. Confidential Information, Restraint of Trade and Departing Employees

Confidentiality

Employees are under a duty, in broad terms, not to disclose (either during or after termination of employment) any 'trade secrets' in their possession relating to their employer's business. What amounts to a 'trade secret' is narrowly confined. Employers can, however, contractually oblige their employees after termination of employment not to disclose confidential information (a wider concept than trade secrets) but should take care to define or identify in the contract what amounts to confidential information in the context of their business. This obligation can be enforced by an injunction and proceedings can be taken to recover documents and property improperly retained by departing employees. Obligations regarding confidentiality are nonetheless subject to the "whistleblowing" legislation thereby enabling employees to make "protected disclosures" in the limited circumstances outlined elsewhere in this guide notwithstanding the confidentiality provisions of their contracts.

Departures and Garden Leave

An employer cannot force an employee to continue to work (for example, during his or her notice period) if he or she does not wish to do so. If the employer or the employee serves notice of termination but the employee refuses to honour that notice period, the employer's remedy is to sue the employee for damages for breach of contract (although the recoverable damages are often difficult to assess) or to seek an injunction preventing the employee from working elsewhere during the balance of the required notice period.

To assist in protecting its business following a key executive's departure, an employer will wish to include in its employees' contracts an express 'garden leave' provision that permits the employer to keep the employee out of the market during his or her notice period by enabling the employer to exclude the employee from its premises and not to provide any work during that period. The employee remains employed by the employer during any period of garden leave. He or she therefore remains entitled to receive any pay and (unless the contract otherwise provides) contractual benefits and also remains obliged, if his or her contract so provides, not to commence new employment. However, if the employee nevertheless seeks to join a competitor during the garden leave period, an employer can seek an injunction preventing the employee from doing so. If the court grants an injunction in this situation it will, however, limit the duration of the injunction to such period as is strictly necessary to protect the employer's business.

If there is no express garden leave clause in the contract, the employee may (depending on his or her security and the nature of his or her role) argue that to exclude him or her from work during the notice period amounts to a breach of contract entitling the employee to resign, claim constructive dismissal and ignore any post-termination restrictive covenants.

If there is no express garden leave clause in the employee's contract, it may still be possible to obtain an injunction preventing the employee from working for a competitor during his or her notice period where the employee seeks to commence employment with a new employer in breach of his or her obligation to give notice. Such an injunction will only be granted if the employer is prepared to continue to pay the employee and if the employee's proposed activities will harm the employer's business to a sufficiently material extent. Again, the court will only grant an injunction preventing an employee from working for the competition for such part of the outstanding notice period as is strictly necessary to protect the employer's legitimate business interests.

Restrictions After Employment

It is possible to include express terms in the contract of employment which restrict the ability of an employee to compete with the employer or to poach clients or customers for the purposes of a competing business for a limited period after the termination of his or her employment. In order to ensure that such covenants are enforceable, they must, however, be drafted carefully and precisely to conform with the detailed case law requirements for such provisions to be enforceable as otherwise they will be invalid as a matter of public policy. The courts will only enforce such provisions to the extent they are necessary to protect the employer's 'legitimate interests' (such as its confidential information and goodwill in terms of its customer connections or stable workforce) and are reasonable in terms of their duration, scope and geographical application.

4. Key Executives' Contracts of Employment

Introduction

Quite apart from the legal obligation to provide a written statement of the prescribed particulars of employment, it is prudent for employers to enter into detailed employment agreements with their directors and other key employees setting out their respective rights and obligations. Detailed contractual provisions not only ensure clarity but also provide the employer with rights which may only be available by express agreement. Matters commonly addressed in such employment agreements include:

  • notice period;
  • retirement age;
  • job title and reporting obligations;
  • 'garden leave' provisions;
  • place of work and relocation obligations;
  • prohibition of, or limitation on, outside interests;
  • salary and review provisions, bonuses and benefits;
  • limitations on and procedures for reimbursement of expenses;
  • holiday entitlement and approval procedures;
  • payment during sickness absences;
  • limitations on authority to incur liabilities on behalf of the employer;
  • ownership of intellectual property rights;
  • express confidentiality obligations;
  • compliance with applicable regulatory provisions (with regard, for example, to directors' dealings in securities of listed companies and the rules of relevant financial regulators);
  • the right to suspend for the purposes of investigation of misconduct or other serious matters;
  • obligations to resign directorships and offices and to return property and papers on termination of employment;
  • identifying the circumstances entitling the employer to effect summary dismissal for 'cause' such as gross misconduct, neglect of duties, bankruptcy, becoming of unsound mind and conviction of a criminal offence; and
  • post-termination restrictions.

5. Income Tax and National Insurance

PAYE

Pay-As-You-Earn (PAYE) is the statutory system under which employers are obliged to deduct income tax and National Insurance contributions from the 'emoluments' of their employees at the time they are paid. The employer effectively acts as a tax collector for HM Revenue & Customs (HMRC). HMRC codes determine the appropriate amount of tax to be deducted.

An employer must send the tax and national insurance contributions deducted from an employee's salary by no later than the 19th of the month following payment or, if electronic payments are made, by the 22nd of the month following payment. Payments may be made quarterly instead of monthly if the average monthly total tax and National Insurance to be paid is less than £1,500. Interest is charged on late payments.

At the end of each tax year (i.e. 5 April) an employer must give to each employee a Form P60 which shows the employee's total taxable emoluments in that year, the net tax deducted, the relevant tax code for the individual, the employer's PAYE reference, the employee's name and national insurance number and the employer's name and address. On termination of an employee's employment, an employer must give to the employee a Form P45 which gives details of the employee's total pay and tax deducted in the tax year to date.

National Insurance

National Insurance contributions are a social cost borne by employers and employees based on an employee's earnings. Employees' contributions are deducted by their employer in the same way as income tax. Statutory sick pay, statutory maternity pay, sickness benefit, gains on the exercise of share options and sums received as consideration for restrictive covenants are 'earnings' for National Insurance purposes. Payments made to cover business expenses incurred by an employee are not. However, the employer must have evidence which identifies the business expense incurred and its amount and show that the expense was incurred as part of the employee's work. Many benefits in kind attract National Insurance, including private medical cover, company cars, nursery places, relocation costs, credit cards, preferential loans and educational or other assistance. No National Insurance is payable by either the employee or the employer if the employee is under 16 and none is payable by the employee if he or she is over the State retirement age.

National Insurance is based on the employee's pay in an earnings period. This is the period for which earnings are normally paid if they are paid on a regular basis. For example, if an employee is paid weekly, the earnings period is a week.

Employees from outside the UK (including any country within the European Economic Area, Austria, Australia, Barbados, Bermuda, Canada, Cyprus, Finland, Guernsey, Iceland, Israel, Jamaica, Jersey, Malta, Mauritius, New Zealand, Norway, Philippines, Sweden, Switzerland, Turkey, the U.S. or Yugoslavia) and who continue to pay social security in their own country can claim exemption from National Insurance.

The current National Insurance rates are as follows:

Employee's contribution:

Gross pay per week

National Insurance contribution

Up to £138

0%

£139 to £817

12%

More than £817

2%

Employer's contribution:

Gross pay per week

National Insurance contribution

Up to £138

0%

More than £138

13.8%

   

Itemised Pay Statements

All employees have the right to a written itemised pay statement.

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