A victim of contract killers? Know your rights

All is not lost if you are dismissed without a service agreement. Ian Hunter explains

Does the lack of a written contract of employment mean that an employee's only security is the quality of his or her last piece of work? This widely held belief would seem to be contradicted by reports that the former Cable & Wireless chairman Lord Young is seeking a settlement in excess of pounds 2m from his former employers, despite the lack of a written contract. The reality is that even without the comfort of a service agreement, those at the top usually have sufficient legal rights to make a substantial financial claim if they are dismissed summarily in breach of contract .

The absence of a written contract does not mean there is no contractual relationship. Employers and employees still have certain implied legal rights and obligations. The employer's obligations include the duty to pay salary, provide a safe workplace and to act reasonably. The employee has corresponding duties, which include honesty, competence and loyalty.

Employees have additional rights guaranteed by statute. Most have the right to statutory sick pay. Female employees have varying maternity rights, depending on length of service. Employees are also protected against unlawful deductions from salary, as well as racial and sexual discrimination.

Section One of the Employment Protection (Consolidation) Act 1978 imposes on employers a duty to provide staff with a statement of employment particulars within two months of starting work. This must include details such as rates of pay, place of work, job title and holiday pay. However, sanctions for failing to comply are minimal.

In large part, the extent of financial protection afforded to employees on summary dismissal is dictated by the length of notice period to which they are entitled. The lack of a written contract does not mean all is lost.

The starting point for calculating damages is a sum equal to the net salary and value of fringe benefits (such as pension contributions or the use of a car) that the employee would have received during the notice period. Even if the employee does not have a written contract stipulating salary and perks, he can still show by way of wage slips, pension statements and similar documents the benefits to which he is entitled.

There is a statutory minimum notice period for all employees. Until the completion of two years' service, employees are entitled to one week's notice; thereafter they are entitled to one week's notice for each completed year of employment, up to a maximum of 12 weeks. However, staff who do not have an express notice period can argue that they are entitled to "reasonable notice", which is determined by such factors as the industry norm for someone of his status. The Greenbury report on directors' pay has pressed for a reduction in the notice period of senior executives in listed companies to a year or less. It is still relatively easy for a senior executive of a listed company to argue, in the absence of an express notice period, that it is appropriate to calculate compensation by reference to a two-year period.

In addition, all employees who have completed more than two years' continuous employment have an undisputed right not to be unfairly dismissed, regardless of whether they have a written contract.

The two-year qualifying period was successfully challenged in the Court of Appeal and will now be considered further in the House of Lords. Claims in respect of unfair dismissal must usually be submitted to an industrial tribunal within three months of dismissal. Awards consist of two parts: the basic award, subject to a maximum of between pounds 105 and pounds 315 for each year of employment, depending on age, and the compensatory award, subject to a maximum of pounds 11,300.

There are advantages for senior executives who do not have a written contract. It is usual for senior employees' contracts to contain post- termination restrictive covenants preventing them joining competitors. In the absence of such provisions, if the employee should leave and give a competitor the benefit of his experience, there is little his former employer can do to stop him.