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Employment Contract

What Is an Employment Contract?

An employment contract is a signed agreement between an employee and an employer. It establishes both the rights and responsibilities of the two parties: the worker and the company.

What is Included in an Employment Contract?

Also known as a contract of employment or employment agreement, an employment contract lays out the rights and responsibilities of both employer and employee. More specifically an employment contract can include: 

  • Salary or wages: Contracts will itemize the salary, wage, or commission that has been agreed upon.
  • Schedule: In some cases, an employment contract will include the days and hours an employee is expected to work. 
  • Duration of employment: An employment contract will specify the length of time the employee agrees to work for the company. In some cases, this might be an ongoing period of time. In other cases, it might be an agreement set for a specific duration. Other times, a minimum duration is laid out, with the possibility of extending that period.
  • General responsibilities: Contracts can list the various duties and tasks a worker will be expected to fulfill while employed.
  • Confidentiality: Although you may have to sign a separate non-disclosure agreement, sometimes a contract might include a statement about confidentiality. 
  • Communications: If an employee's role involves handling social media, websites or email, a contract might include a point that the company retains ownership and control over all communications. 
  • Benefits: A contract should lay out all promised benefits, including, but not limited to, health insurance, 401k, vacation time, and any other perks that are part of the employment.
  • Future competition: Sometimes a contract will include a non-compete agreement (also known as an NCC). This is an agreement stating that, upon leaving the company, the employee will not enter into jobs that will put him or her in competition with the company. Often an employee will have to sign a separate NCC, but it also might be included in the employment contract.

Other possible terms include an ownership agreement (stating that the employer owns any work-related materials produced by the employee), information on solving disputes at work, or qualifications on where the employee can work after leaving the company (this is a way to limit competition between related companies).

What are the benefits and drawbacks of a written Employment Contract?

A written contract is a great way to clearly define the job, your responsibilities, and your benefits. It prevents any confusion about the job.

However, be sure to carefully read all elements of an employment contract before signing it. Make sure that you are comfortable with every part of the contract. If you break the contract, there might be legal consequences. Therefore, make sure you are able to uphold every part of the written agreement. For example, if the contract requires you to stay at the job for a minimum period, make sure you will be able to do this. Also, if the contract places limits on where you can work upon leaving the company, consider whether or not you are comfortable with this.

Implied ECs

An implied employment contract is one that is inferred from comments made during an interview or job promotion, or from something said in a training manual or handbook. For example:

  • Implied contracts can be inferred from actions, statements, or past employment history of the employer. 
  • An employee may have seen or recorded a history of promotions, raises, and annual reviews for themselves and their coworkers.
  • During an interview, a potential employee may be told that the employee’s job is a long-term or permanent position in place unless they are fired for a good reason. 

Enforcing an Implied Contract

While implied contracts are difficult to prove, they are binding. Employees can prove that an implied contract was established by pointing out actions, statements, policies, and practices of the company that led them to believe with reasonable cause that the promise would come to fruition.

Who Needs an Employment Contract?

Any employer, human resource manager, and recruitment officer should use an employment contract with new hires, recruits, and current employees who are changing job positions. An employment contract clarifies the expectations of and gives legal protection to both parties.

There are a few specific instances where employment contracts (and their negotiated terms) are especially important:

  • Senior positions where the contracts are generally reviewed and negotiated by an employer-side attorney and an employee-side attorney.
  • Union-represented employees for both public sector unions (teachers’ unions, etc.) and the private sector unions (manufacturing, etc.).

Does an Employment Contract Need to Be in Writing?

Generally, an employment contract should be in writing, but there are other various types of employment contracts. For an employer, a written contract creates organization and structure in the hiring process and working environment. For employees, a written contract provides a sense of stability and security.

There are some disadvantages to a written contract. For either party, it may limit flexibility, affect negotiations, and implies a promise of honesty and fairness that may or may not actually be present.

What are the types of ECs

Types of employment contracts refer to the different contract arrangements an employer can establish when hiring an employee. There are four main types of employment contracts employers use when hiring and setting the terms of employment with a new employee:

  1. At-Will Employment Contracts
  2. Written Employment Contracts
  3. Oral Employment Contracts
  4. Implied Oral Contracts

The type of employment contract an employer chooses depends on what works best for the employer and their employment situation.

At-Will ECs

  • The most common type of employment contract in the U.S.
  • At-will contracts mean employees can be fired or quit at any time, without notice.
  • Employers cannot fire employees for protected reasons such as protected classes, discrimination, or retaliation.
  • At-will employment does not prevent employees from enforcing the terms of their contract.

Written ECs

  • More detailed than at-will contracts.
  • Details specific employee and employer obligations
  • Written employment contracts generally run for a specified time decided upon by the employer.
  • Written employment contracts outline the terms of termination, and employees cannot be terminated unless they violate their employment contract terms.

Oral ECs

  • Employment can either be at-will or based on specified terms.
  • These contracts are legally binding but present difficulties if there is a breach of contract as they are difficult to prove.
  • If the contract is breached, the oral employment contract is enforced based on any available documentation, surrounding circumstances, evidence of the agreement, and the reliance of the employee and employer.

Implied Oral Contracts

  • These contracts have no formal documentation and can combine both oral and written statements.
  • Even if an employee believes they were not an at-will employee because of an implied oral contract if they have signed an at-will agreement they are under the conditions of an at-will employee.
  • When considering implied oral contracts, courts take into consideration employee performance within the company and how long the employee worked for the company in question.

The type of employment contract you need depends on the type of work you need from any employee and how you want to structure your employee contracts. Make sure you take the necessary steps to hire employees and understand the implications of each type of employment contract.

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