General principles of contract law apply to the formation of employment contracts. A contract of employment may be entered into orally, but a written contract is recommended as proof of its existence and of individual terms of the employment relationship.
The majority of workers on the Icelandic labour market are employed on a full time basis under an open ended employment contract. Other employment arrangements, such as part-time work and fixed-term work are permissible and exist in various sectors of the labour market.
The terms in the applicable collective agreement are regarded as incorporated into the contract of employment of individual workers falling within its scope of application. These include the basic provisions, such as minimum rates of pay and other terms such as working time, the right to holiday and paid leave, payment of wages during sickness etc.
Contracts of employment that provide for poorer terms than those provided for in the applicable collective agreement are according to law null and void.