What employment contracts are there and why are they important?

Aileen McCarney 02.05.2018

I'm Tania Garcia, an HR professional and I am delighted to write my first blog for Morgan McKinley. I have years of HR experience and have been very lucky to have travelled and resided in many different countries from a very young age, this allowed me to grow faster and understand human behaviour throughout its different cultural backgrounds.

Today, I want to discuss the power of contracts in Ireland.

Why are contracts so important, and how many types of contracts are there?

And if you want to add more complexity to the mix, how are these contracts used accordingly in each industry?

According to CIPD, “Contracts of employment, by definition, are legally binding agreements between an employer and an employee. They consist of express terms written into the employment contract and implied terms which are not expressly stated. Although employment contracts are governed by contract law, there are many statutory rules which affect employment contracts too.”

We can therefore define statutory rules, in two ways:

  1. as regulation made by the Irish government
  2. as a rule made by Irish or EU laws

 

As an example, we can share an experience whereby a contract was issued for a Northern Irish employee and the benefits would have fallen under UK employment law, and as a result HR and finance departments had to make changes to the payroll system in order to reflect the appropriate Benefits in Kind (BIK) rate.

Express Terms referring to those terms that are in fact stated in writing or given verbally. In Ireland it does not necessarily have to be a contract, although a written statement of terms is to be handed out to the employee within a two month timeframe due to the Terms of Employment (Information) Acts 1994–2014. A contract of employment may be contained in more than one document, for example, some terms may be contained in a Collective Agreement and incorporated into individual contracts of employment. Certain terms are prohibited by law; such as terms that support to exclude the application of protective legislation, for example, maternity leave according to the Maternity Protection (Amendment) Act, 2004.

An example of an express clause is a ‘restraint of trade clause’ which seeks to restrain a person from working with another employer either during the course of his employment or after.  These clauses are contrary to public policy and are void unless they are reasonable and in the interests of the public.

There will be times where HR is experiencing high volumes of administrative work and as a result the contract may not be ready to give to the employee, although it is always advisable to follow a best practice model and ensure the contract is provided during the recruitment and selection, the offer stage. It is very important for employers and employees to make sure open lines of communication are taking place and establish the psychological contract, i.e. having clear understanding of the employers and employees expectations.

I dare to say the psychological contract outweighs the Contract of Employment in the sense of employee adaptation to the company, as often the legal format is not easily understood by employees, the legal jargon tends to confuse people which does not help with their adaptation process. This is where HR is here to help you, please don’t be afraid to reach out to your HR department with any queries you may have regarding your contract of employment.

While studying employment law and industrial relations, there was a discussion regarding a company that did not issue contracts to its employees; they did however, ensure to establish good bonds with the employees by having a couple of HR incentives programmes that allowed for team building and working well practices.

Let’s get the elephant out of the room, and share that all the HR students were mortified due to the legal implications the company could face in the future, should it not comply with Irish or EU Legislation; as already mentioned its not best practice, nevertheless the company continues to have happy employees and therefore has not experienced any employment law issues.

Contracts have the power to protect the employee and the employer. It is the duty of the employer to understand why and what type of contract to issue to its staff. Commonly linked with the company’s headcount and business strategy of course HR jumps in and aligns its strategy to the business by providing recommendations of the best suited types of contract to issue and when.

Types of contracts

A permanent contract is open ended and the one that provides most security in terms of employment law, steady salary or income and career progression. It's open ended, meaning that it continues open until either party terminates the relationship of employment.

However, please keep in mind there are many factors that can cause this contract to be unstable in nature. First, an employee must pass the probation period; you may find some companies luring employees under a false permanency pretence, only to let them go before the six months' standard period; although companies may choose to extend the probation period they must give the employee reasonable justification for the decision.

Fixed term contract (FTC) or specific purpose contract

It provides employees with an specific start and end date and/or when an specific tasks to be carried out; and will provide employees with some stability as they can plan ahead their future while enjoying the fixed-term salary. However, some organisations may not fully have clarity of their headcount forecasts, therefore HR strongly recommends that employees are made aware of a fixed-term contract cannot be issued over a four-year period. Otherwise the employees must be issued a permanent contract... unless the employer can provide objective grounds for the renewal of the contract.

After one year of continuous service the employee is covered under the Unfair Dismissals Acts/legislation, only then a claim can be made under this legislation.

Zero hour contracts

The most controversial type of contracts; it appears there were discussions, September last year, where Leo Varadkar is to introduce a new law that will ban zero hour contracts. However, this idea is not supported by IBEC as they believe the move will cause more employment challenges and expenditure.

Whether is the right move to continue with zero hour contracts, one thing seems to be for sure, employees under this type will seek government unemployment assistance while in the absence of work, provided that they meet the social welfare requirements.

Another important point to share is the so-called flexibility as it appears it only goes one way leaning towards the employers agenda not allowing work-life balance to its employees.

This report makes a number of recommendations, which include:

  • A statutory requirement to furnish a written statement of employment to employees on first day of employment
  • Protections for "if and when" contracts to be legislated for
  • At least 72 hours advance notice of work to be given to employees
  • A minimum of 3 continuous working hours to be given or payment for such
  • Consideration to be given to the legal position of people with "if and when" contracts and their employment status

 

Source: ‘Zero hour’ legislation a government priority

Aileen McCarney's picture
Director | Accounting & Finance | La Creme Office Support
aileenmccarney@morganmckinley.ie

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