Employment Contracts (Cambridge (CIE) A Level Business)

Revision Note

Written by: Lisa Eades

Reviewed by: Steve Vorster

The Nature of Employment Contracts

An employment contract is an agreement between an employer and an employee that outlines the terms and conditions of their working relationship, including
- The employee's working hours and expected work pattern, e.g. full-time, part-time or shifts
- The contract period, e.g. permanent, temporary or for a fixed term
- Entitlement to paid leave, e.g. holidays, parental responsibility
- Notice periods for both the employee and employer
The legal status of employment contracts differs between countries
- In most countries, a contract is a legal requirement that comes into force as soon as the employee accepts their job offer
- In some countries, a verbal agreement has the same legal status as a written contract

Types of Contracts

There are three main types of employment contract

The Main Types of Employment Contracts

Type of Contract	Explanation
Permanent	Permanent contracts set out the terms of employment on an ongoing basis, with no specified end date They are often used when an employer needs to fill a role on a long-term basis They are appropriate when a business needs an employee with specific skills or experience that cannot be easily replaced by another worker Permanent contracts provide stability for both parties Employers know that they have someone who can stay in their role for as long as needed Employees know that their job is secure until they decide to leave it
Fixed-term	Fixed-term contracts set out the terms of employment for a specific period of time They are used when an employer needs to fill a role on a temporary basis or when they need to cover for someone who is away from work, e.g. taking parental leave Fixed-term contracts usually have a start date and end date specified in the agreement
Casual	Casual contracts set out the terms of employment on an ad hoc basis, with no specified end date or hours worked per week or month They are typically used when an employer needs someone to work irregularly in a certain period, e.g. during busy periods such as the summer season They are also appropriate when a business needs someone with specific skills or experience but does not want to commit to employing a permanent worker Zero-hour contracts are a controversial type of casual contract where workers are not guaranteed a minimum number of hours but must be available should their services be required by their employer at any time

Type of Contract

Explanation

Permanent

Permanent contracts set out the terms of employment on an ongoing basis, with no specified end date
- They are often used when an employer needs to fill a role on a long-term basis
- They are appropriate when a business needs an employee with specific skills or experience that cannot be easily replaced by another worker
- Permanent contracts provide stability for both parties
  - Employers know that they have someone who can stay in their role for as long as needed
  - Employees know that their job is secure until they decide to leave it

Fixed-term

Fixed-term contracts set out the terms of employment for a specific period of time
- They are used when an employer needs to fill a role on a temporary basis or when they need to cover for someone who is away from work, e.g. taking parental leave
- Fixed-term contracts usually have a start date and end date specified in the agreement

Casual

Casual contracts set out the terms of employment on an ad hoc basis, with no specified end date or hours worked per week or month
- They are typically used when an employer needs someone to work irregularly in a certain period, e.g. during busy periods such as the summer season
- They are also appropriate when a business needs someone with specific skills or experience but does not want to commit to employing a permanent worker
- Zero-hour contracts are a controversial type of casual contract where workers are not guaranteed a minimum number of hours but must be available should their services be required by their employer at any time

Redundancy

Employees are made redundant when the job is no longer available and the business reduces the size of its workforce
- The termination is not due to any fault of the employee
- The employer must follow certain legal procedures, including providing notice and paying redundancy compensation
Redundancies are common when a business is placed in administration
- Reducing the workforce size can reduce costs significantly, improving the viability of a business
- E.g. In early 2024, The Body Shop was placed into administration. Early plans to close 75 retail stores made 500 employees redundant, with the aim of keeping more than 100 stores open and an increased focus on online sales

Dismissal

Dismissal (firing or sacking) is the termination of employment by an employer against the will of the employee
- Employees are usually terminated due to their misconduct (e.g. violating company policy) or poor performance
- The employer may choose to dismiss them immediately (without notice or compensation) or provide a notice period which they can work out
Businesses must take care to avoid unfair dismissal, which occurs when procedures are not properly followed
- Workers can take legal action against employers if they feel their dismissal is unfair
- E.g. An employee at Lidl’s head office in Ireland, dismissed after missing work for 69 days over a 16-month period, was awarded compensation of €16,000 when it was established that he had correctly followed the company's sickness absence policy

Examiner Tips and Tricks

You do not need to be able to quote specific laws related to redundancy or dismissal, but you may need to demonstrate that you understand the difference between them and can explain the impacts on both the business and the employee of leaving employment in each of these ways.

Last updated: 12 October 2024

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