Whenever someone works for an employer a contract exists, even if nothing is put into writing. (If you offer me a fiver to do your shopping for you, and I agree, we've both entered into a legally binding contract). However all employees are entitled to receive a 'written statement of employment particulars' within two months of the commencement of their contract. That statement doesn't need to be a formal document headed as 'Contract of Employment'. As long as it contains the relevant information it could simply be a letter offering the new employee a job:
http://www.direct.gov...dConditions/DG_175704
If your employees haven't received such a statement, you should ensure that they do so as soon as possible after you take over the business.
You should also ensure that your employees receive detailed pay slips:
http://www.direct.gov...oyees/Pay/DG_10027228
Unless your supervisor (and other staff) are particularly litigious, the chances are that you could demote the supervisor and sneak staff appraisals into their contracts without any real problems. The firm I worked for until recently had a delivery driver who had previously been both the drivers' manager and a company rep. She'd been demoted twice (including, I assume, with a loss of pay) on the grounds of not being good enough at her job, without any legal problems arising.
Chris