LABOUR LAWS AND NATURE OF THE EMPLOYMENT CONTRACT

UNIT 2 SECTION
INDUSTRIAL 1
RELATIONS Unit 2, section 1: Nature of the employment contract

The Labour Act has made provisions as to how industrial disputes may be
resolved using mediation and arbitration. The Arbitration and Mediation
Service can resolve disputes arising between employees and employers
when negotiation between the two parties fails. In order to have a dispute
resolved via arbitration or mediation both parties must agree, and endorse
the appointed mediator or arbitrator.

When employees begin a job, they often sign a formal contract with the
employing organization. These legal employment contracts usually set out
each party’s responsibilities and rights under the employment relationship,
and specify the length of contract terms. In some cases, although individuals
do not sign a contract, an implied contract is inferred from oral statements
made by management. Whether implied or explicit, employment contrasts,
consist of the unique combination of the fundamental beliefs held by both
employers and employees in terms of what they wish to give and receive
from the employment relationship.

This section describes the employment contract and introduces the student
to the main conditions of employment in Ghana. After a successful
completion of this section, the student should be able to:
 Explain an meaning of employment contract;
 Describe the types of employment in Ghana; and
 Understand the general conditions of employment in Ghana

Meaning of employment contract

A contract is a formal agreement between two or more parties which the law
will enforce. The essential elements that must be present to make a contract
enforceable are as follows:
 There must be an offer by one party and acceptance by another party to
the contract;
 There must be an intention to create legal relations;
 The terms agreed by the parties must be sufficiently certain;
 The agreement must be supported by consideration

Contracts generally contain:

 Express terms – those defined in writing or orally
 Implied terms – those that fall into contract by the conduct of the parties
or by custom practice, terms implied by statue;

An employment contract has been defined as the formal written agreement

that specify the terms and conditions of employment for both employees and
employers. Most often, employment contracts state explicitly what the
employee is expected to do during a specific time, and what the employer is
expected to offer in exchange for the employee’s effort during that time.
Section 175 of the labour Act, 2003 (Act 651) defined the following terms
in relation to the employment contract in Ghana:

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 Employment means 'employment under a contract of employment or

agreement of employment'
 A contract of employment means 'a contract of service whether express
or implied, and if express whether oral or in writing'
 A worker means 'a person employed under a contract of employment on
a continuous, part-time, temporary or casual basis'.
 An employer means 'any person who employs a worker under a contract
of employment'.

Employment contracts were originally established by employers in an effort

to avoid wrongful termination lawsuits based on the doctrine of implied
contracts. During the industrial era, employers managed their businesses
under the premise that any employee in their organization could be sacked
from the organization as long as the employer thinks so. This was based on
the rule of “employment-at-will”. The concept of employment-at-will dates
back to early employment relationships in England. According to this rule,
both the employer and employee have the mutual right to terminate an
employment relationship at any time, for any reason, and with or without
advance notice to each other.

Types of employment in Ghana

The employment of a worker by employer foe a period of six (6) months or
more or for a number of working days equivalent to six (6) months or more
within a year shall be secured by a written contract of employment which
shall express in clear terms the right and obligations of the parties. Upon
employment, the employer shall within two (2) months after the
commencement of the employment furnish the employee with a written
statement of the particulars of the main terms of the contract of employment
in the form set out in schedule 1 of Act 651 and signed by both parties.
There are three types of employment contracts in Ghana:
 Contract from month to month – this is one in which remuneration is
paid at a monthly rate
 Contract from week to week – this is one in which remuneration is paid
at a weekly rate
 Contract determinable at will – this is one in which remuneration is paid
other than monthly or weekly.

Terms and format of the employment contract

Schedule 1 of the Act 651 sets out the terms of the contract of employment
in the following format:
1. Name of employer………………………………………………………
2. Name of employee………………………………………………………
3. Date of first appointment………………………..………………………
4. You are employed as (job title or grade)…………….………………….
5. Your rate, method and intervals of pay is……………...………………..
6. Your hours of work are…………………………………………………

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7. Your periods of holidays and details of holiday pay are………..……….

8. The conditions relating to incapacity to work due to sickness or injury
and details of sick pay, if any, are………………………………………..
9. Details of social security or pension
scheme………………………………………..
10. Amount of notice to terminate employment given by
(a) The employer……………………………………………………….
(b) The worker………………………………………………………….
11. The disciplinary rules applicable to you are……………………………...
12. Procedure of dealing with any grievance or dispute is…………………..
13. Overtime payment, if any………………………………………………...
Date…………………………............
Signature of employer…………………………
Signature of employee………………………

Contract of service and contract for service

The relationship between an employer and a worker exists under a contract
of employment or service. This is different from a contract for service which
refers to the relationship between an employer and an independent
contractor or a supplier of services. In order to clearly understand the two
concepts, a distinction has been made between them with respect to the
following factors:
 The degree of control exercised by the employer.
An important point to remember about the employment relationship is that,
generally, it is the employer that has the power to dictate the contractual
terms unless they have been fixed by collective bargaining. This power is
exercised in terms of the payment of the worker, working hours, place of
work and the right to appoint or terminate the employment contract. In the
contract for service, there is limited control as the employee is an
independent individual. Thus, the greater the degree of independence from
continuous and detailed control from an employer, the more likely the
contract is one for service.
 The organization test.
This defines the degree of association with the organization. The employee
under a contract of service can be regarded as an integral part of the
organization who carries out work generally on a permanent basis on behalf
of his employer. A worker under contract for service is engaged only for the
purpose of completing a specific task, and may usually leave after
completing that the work. When there is no work or during public holidays,
an employee under contract of service will still receive payment of salaries
but the one engaged under contract for service still holds onto the agreed
charge.
 Supply and ownership of assets
One of the major factors on which the distinction between contract of
service and contract for service can be made clearer is the supply of
equipment, tools and machinery required for performing the employees

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work. In the contract of employment, the worker is supplied with the

necessary tools and equipments. However, in a contract for services, the
employee provides his own equipment and working tools for the discharge
of his obligations under the contract. Thus, the owner of assets used by the
employee under contract of service is the employer whereas in the case of
an employee under contract for service, it is the employee himself who
owns the assets used.
 Tax and social security payments
In a contract of service, the normal procedure is for the employer to deduct
income tax and social security contributions from salaries and pay them to
the respective bodies or government. In Ghana, an employee’s tax liability
under contract of service is withheld by the employer in a system called Pay
As You Earn (PAYE). The employer also pays part of the social security
contribution on behalf of the employee under contract of service. The
percentage of the contribution payable by the employer is currently 12.5
percent while the employee pays the remaining 5.5 percent. This is not the
case for employees under contract for service who are required to pay their
own taxes and social security contributions.
 The parties' respective view of their relationship.
In contract of service, employees and employers further engage in what is
known as the psychological contract. This may be defined as the set of
beliefs or expectations that employees hold about what they will contribute
to the organization (referred to as contributions) and what the organization,
in return, will provide to the them (referred to as inducements). Employees
may expect to be treated fairly as human beings, to be provided with work
that uses their abilities, to be rewarded equitably in accordance with their
contribution, to be provided with an environment that enable them to
display competence, to have opportunities for further growth, to know what
is expected of them, and to be given feedback on how they are performing
on their jobs. Employers on the other hand, may expect their workers to put
themselves out for the company, to be fully committed to its values, to be
compliant and loyal, and to behave in ways that would enhance the image of
the organization with customers, suppliers and the general public. Mutual
misunderstandings on these beliefs and assumptions reflect inequity which
can cause friction and stress, and can lead to recriminations and poor
performance, or to a termination of the employment relationship. Such
contracts do not occur in the case of contracts for services.

The employment contract follows the general principles of the contract law
and requires all the essential elements of legally enforceable contracts.

There are two forms of employment contracts; the contract of service and
contract for service. There is a defined format for designing the employment
contract in Ghana and this must be followed each time an employee is
engaged. A copy of the contract must be given to the employee.

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Self-assessment questions
(1) What is an employment contract? List and explain the three main types
of employment contracts in Ghana.
(2) Differentiate between a contract of service and a contract for service.
List the essential elements that must be present to make a contract of
employment enforceable in Ghana.
(3) Design an employment contract for the employment of an employee in
you company

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