Practical Answers to Employment Law Issues
October 06, 2022 - European Union, Legislation

New Requirements for Employment Agreements in Europe

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Following the enactment of the Directive on Transparent and Predictable Working Conditions (the “Directive”), EU Member States have had to implement into their national laws additional information obligations on employers. The deadline for the transposition of the Directive into national law was August 1, 2022. The Directive extends existing provisions based on a former EU directive and broadly follows the UK regime, which has itself broadened in scope in recent years. To avoid falling foul of these new and expanded requirements—which could result in substantial fines—companies with employees across the EU and the UK should review their existing employment contract templates for new hires and take steps to provide all required information to existing employees, whilst also taking into account any “special rules” that might apply in a particular country.

I. How does the Directive impact employers with EU-based employees?

Extended content requirements

Employers are required to provide their employees based in the EU with information on the essential terms and conditions of their employment relationship. Whilst this is not a new concept—similar requirements have been in place under a former EU directive since 1991—and it was always common practice throughout the EU to provide employees with an employment agreement containing the key terms of their employment (such as remuneration, working hours, position, etc.), the Directive transforms this practice into a mandatory and publishable obligation, by obliging EU Member States to prescribe penalities for breaches of the information obligations. In addition, the catalogue of terms to be provided (set out in full at the end of this article) includes information that has not traditionally formed part of contract templates in the EU.

These changes affect not only new employment relationships, but also existing employees. Employers are now required to fulfill the information obligations and provide all new employees with a document containing the necessary information, and existing employees are entitled to receive a summary of their essential working conditions upon their request.

New mandatory deadlines

The Directive stipulates different deadlines within which employers need to provide the relevant information to their employees. The most essential terms, such as the identity of the contractual parties, remuneration, and working hours, must be provided within the first seven days of employment. The remaining terms (described below) should be communicated within the first month. In Germany, some information, such as the employer’s (legal) name and address, the remuneration, and the agreed-upon working hours, even must be provided by the first day of employment at the latest. Employers should adhere to the shortest deadline, as set out in the applicable law of the relevant Member State. In Germany, each infringement of the information obligations, including a delayed handover, is considered an administrative offense that can be punished with a fine up to EUR 2,000 per case (i.e., per employee).

Form of information

The Directive requires the information to be provided in writing, either on paper or in electronic form. If an employer chooses electronic form, the employee must be able to store and print the document, and the employer should receive a proof of transmission. This information is usually provided in the form of an employment agreement. Typically, most of the information prescribed by the Directive is already included within employment contracts and employers will need only update their template documents to include all necessary information. No separate notice is required.

Special aspects in Germany

In Germany, the information obligations prescribed by the Directive are laid down in the Act on Notification of Employment Conditions (Nachweisgesetz). In contrast to the Directive, the German legislation does not allow for electronic signatures to be used within employment contracts. Thus, strict formal requirements apply: employment contracts must be signed by an authorized person and physically handed out to the employee. Signatures must be in wet-ink; the signing of the employment contract via DocuSign, or provision of a scanned copy of the signed agreement to an employee, will not meet Germany’s legal requirements.

Any non-compliance with these requirements can be punished with a fine of up to EUR 2,000 per contract. Consequently, companies with larger workforces could be fined huge amounts if they systematically fail to comply with these requirements.

II. What about in the UK?

Under UK employment law, employers of UK-based employees have been subject to a longstanding requirement to provide written statements of key employment terms to their employees. It has been mandatory to do so for all employees starting work on or after 30 November 1993. Certain terms, those considered most important, must be provided to employees in a single document; these are detailed in section 1 of the UK Employment Rights Act 1996 (the “ERA 1996”) and usually provided to employees in the form of an employment contract. The ERA 1996 provides that other mandatory terms must also be provided in writing, but the details can be set out in supplementary documents, e.g., in a handbook or standalone policies. Written statements can be provided in electronic or paper form and wet-ink or electronic signature is acceptable.

Following a review of employment practices in the UK, the government proposed a package of workplace reforms as part of its “Good Work Plan” to increase the transparency between workers and employers and improve the enforcement of employment rights. A key element of the Good Work Plan reforms was ensuring that companies be transparent with contingent and gig-economy workers who do not enjoy the full protection of UK employment laws.[1] New legislation, which came into force on April 6, 2020, was enacted to implement the reforms proposed by the Good Work Plan, which expanded the scope of the requirement to provide a section 1 statement of terms to give all workers the right to receive a written statement setting out the basic terms of employment, a right previously only available to employees.

The new legislation also further amended the requirements under the ERA 1996 so that written statements must now be provided on or before the individual’s first date of employment, rather than within two months of their start date, as previously required, and the scope of the written statement has also been expanded. For example, employers are now required to list, within the primary written statement, all paid leave to which the employee is entitled and all benefits; previously, these items would appear in supplementary documents.

Where an employer does not comply with any of the provisions, the employee or worker can bring a claim to the employment tribunal at any time during the period of their employment or engagement, or within three months of termination. If a claim on the above provisions is brought in conjunction with another successful substantive claim, the tribunal is obliged to award the employee or worker a minimum of two weeks’ pay, unless it would be unjust or inequitable to do so (and the award can be up to four weeks’ pay if the tribunal sees fit). It is worth noting, however, that the risks attaching to failure to fully comply with the requirements on written statements of employment terms are low in practice as, absent another substantive claim (e.g., for discrimination or unfair dismissal), the most a tribunal would do would be to ask that the relevant particulars be clarified.

III. What practical steps should employers of EU-based employees be taking in light of the Directive?

  • Review and—if necessary—update existing employment contract templates for new hires to include all mandatory terms and conditions;
  • Prepare a notice for existing employees to be able to provide them with a summary of the employment conditions without delay;
  • Ensure that processes are in place to respond to any statutory requests from employees; and
  • Check who needs to be authorized to sign employment agreements and other notices to limit any delay.

IV. What are the “mandatory” details that companies must provide to their workforce (in a single or ‘primary’ written statement)?

These terms are mandatory for both the UK and the EU:

  • identities of the contractual parties;
  • place of work;
  • title or a brief description of the work;
  • commencement date of the employment or engagement;
  • for fixed-term employment relationships: the end date or the expected duration;
  • duration and conditions of the probationary period;
  • if applicable, the training entitlement provided by the employer;
  • amount and nature of paid leave, including holiday leave;
  • termination procedure, including the formal requirements, notice periods, and (in some countries) time limits for bringing a lawsuit before the labor court;
  • remuneration (base salary and any other compensation);
  • length of the worker’s standard working day or week and arrangements for overtime and its remuneration;
  • any collective agreements governing the conditions of work;
  • except for in the UK, where it is the responsibility of the employer, the identity of the social security institutions receiving the social contributions;
  • where the employee or worker will be required to work outside the country of work for a period of one month or more: the period for which they will work outside their country of work, the currency of pay, and any additional remuneration or benefits; and
  • additional details in the event that there is a contracting out certificate in force in respect of the employment or any labor leading arrangements apply.

For the UK, the following additional terms are also mandatory:

  • terms and conditions relating to holiday entitlement (including public holidays) and holiday pay (sufficiently detailed so that entitlement on termination can be calculated); and
  • days of the week required to be worked, whether working hours are variable, and how any variation will be determined.

Further, the following terms are mandatory in the UK, but may be provided for in a separate, reasonably accessible policy document so long as they are referenced in the single statement:

  • terms and conditions relating to pension and pension schemes;
  • terms and conditions relating to sickness, incapacity, and sick pay;
  • disciplinary rules applicable and the disciplinary procedure;
  • person to whom the employee or worker should appeal against disciplinary and grievance decisions and the procedure to be followed; and
  • any non-compulsory training entitlement

Please note that national laws of EU member states may vary with regards to other required terms, so this list must be compared and, if necessary, adjusted to be compliant with the relevant national law.

[1] There are broadly three categories of employment status under UK employment law: employee, worker, and independent contractor. Workers are defined as those with a contract (express or implied) who undertake to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual. In short, personal service is a key element of being a worker; the services cannot be performed by a substitute, unlike with independent contractors. Employees have full statutory employment protection, workers are entitled to some statutory employment protections but not all, and, at the end of the spectrum, independent contractors are treated as commercial parties with no statutory employment rights.