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. An employee contract can be in a verbal or non-verbal form. The conditions outlined in the contract are determined by what was agreed upon at the time the employee indicated they would accept the job post.

What should be 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 include the salary, wage or commission that has been agreed upon.
  • Schedule: In some cases, an employment agreement 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: Employee contracts can list the various duties and tasks a worker will be expected to fulfil 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 employee benefits, including, but not limited to, health insurance, 401k plan, 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 agreement.

Other possible terms of employment contract 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).

How to write an employment contract?

1. Give the contract a title

Give your contract of employment a title so that the individual reviewing or signing it knows what it is. You might call the paper "Employment Agreement" or "[Your Company Name] Employment Contract," for an employment contract example.

2. Determine the parties

In most employment contract, it is stated who is entering into the contract. Consider writing your company name and the name of the person you're recruiting on a piece of paper. 'This employment agreement is between Atlas Corp. ('the Employer') and Samuel Johnson ('the Employee'),' as an example.'

3. Create a list of the terms and conditions

The federal and state governments set some of the minimum terms and conditions for employment contracts. Working hours and severance benefits are included in these terms and conditions. Because terms and circumstances differ by area, it's critical to review your state and local employment legislation.

Other terms and circumstances, aside from labour regulations, are entirely up to you. Benefits, sick pay, dress code, and other words are frequently mentioned.

4. Describe the duties and responsibilities of the position

To ensure that a new recruit understands what is expected of them, provide a description of their job responsibilities. You could add percentages to each responsibility if you wish to present a more detailed breakdown of obligations. Take for example, a customer service person with whom you have an employment arrangement. The following is an contract of employment example of responsibility percentages:

70% of guests' requests, complaints, and concerns are addressed.
20% of employees collaborate with supervisors to improve customer service.
10% of the time is spent cleaning up the sales floor.

5. Include information on compensation

Make sure your employment contract specifies the terms of your salary. This eliminates any uncertainty about whether the new hire's first or second paycheck is due. Here are some things to think about putting in your compensation package.

How will the employee be compensated? (e.g., direct deposit)

If there are any annual bonuses available

How will the employee be compensated?

How does overtime pay work?

Which vacations are paid and which are unpaid?

6. Use contract words that are specific

The effective date, nature of employment, notice, employee termination, dispute process, applicable legislation, and severability are all common contract provisions in employment contracts.

7. Seek legal advice from an employment attorney

After you've finished the first draught of your employment contract, have it reviewed by an attorney or legal practitioner to ensure it complies with all applicable laws. This could help insulate your company from potential employment contract disputes.

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.

What are the types of employment contract?

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 contract 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

Employers and employees that have an employment at-will agreement agree that any party may terminate the other's employment at any time and for any reason (or no cause) is known as at-will employment contract. Employees may also be free to leave their jobs under such a contract without giving their company notice. Legal notice-period requirements are also not set up in advance. This indicates that terminations may be carried out immediately.

Written ECs

Compared to at-will agreements, formal employment contracts are more comprehensive. They are detailed responsibilities for both the employer and the employee. Written employment agreements typically have a duration that has been determined by the employer. Employees cannot be fired unless they breach the provisions of their written employment contracts, which are outlined in written employment contracts. ‍

Oral ECs

Oral employment contracts, sometimes known as "verbal contracts," are simply agreements made verbally as opposed to in writing. Short oral contracts are frequently signed by both parties at the beginning of an employment arrangement. An oral contract can change your at-will status. Oral agreements are challenging to verify and uphold. You should put an important agreement between you and your employer in writing.

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. 

Implied oral contracts

The actions of the parties create an implicit contract. The agreement between the parties establishes obligatory legal duties. Without any oral or written agreement, the contract is deemed to already exist. An implicit contract's fundamental principle is that no individual should unfairly profit at the expense of another.

The kind of employee you need and the way you wish to organize your employee contracts will determine the type of employment contract you require. Make sure you follow the proper procedures to hire staff and that you are aware of the ramifications of every sort of employment contract. ‍

Who needs an employment contract?

With new hires, recruits and current employees who are switching jobs, every company, human resource manager or recruitment officer should use an employment contract. Both parties are legally protected and their expectations are made clear in an employment contract.

Employment contracts (and its agreed terms) are particularly crucial in the following instances:

1. Senior positions where an employer side attorney and an employee side counsel typically review and negotiate the contracts.

2. Employees who are represented by unions in the public and private sectors, such as teachers' unions and other unions (manufacturing, etc.)

Does an employment contract always need to be in writing?

Although an employment contract should typically be in written, there are additional variations. A written contract provides structure and organization for the employer in the hiring procedure and workplace. A signed contract offers stability and security to employees.

Written contracts do have some drawbacks. It could restrict bargaining options for either party and imply fairness and honesty that may or may not actually exist.

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