Advantages and Disadvantages of Employment Agreements

LegalMatch Law Library Managing Editor, Ken LaMance, Attorney at Law

What is an employment agreement?

An employment agreement, or employment contract, is a binding covenant between an employer and employee. It is usually formally preserved in writing and outlines the duties of each party with regards to the term of employment. 

 

Employment agreements generally address important aspects of the employment such as wages, benefits, termination procedures, covenants not to compete, and the duties and responsibilities of employer and employee. 

What are the advantages of employment agreements?

One of the main advantages of utilizing an employment agreement is that it allows for a high level of specificity regarding the details of the employment. If either the employer or employee desires a certain wage rate, for example, they can specifically list this in the agreement. It allows for both parties to negotiate the terms under which they are willing to cooperate with one another. This feature is especially important for companies who need to protect particular trade secrets or copyrighted material. 

 

Another advantage is that the agreement can be referred to in the future if a dispute arises over a particular aspect of the employment. This is why it is important to obtain a written agreement when possible. The written document can be used as evidence if necessary.

 

Finally, employment agreements are important for fostering a positive relationship between the employer and the employee. Employers usually feel that an employment agreement creates an enhanced degree of organization and structure in the work relationship. For employees, an employment agreement can provide a literal sense of stability and security, especially if the agreement lists the time frame for the period of employment.

What are the disadvantages?

A main disadvantage of working with an employment agreement is that it may somewhat limit the flexibility of the employment arrangement. It often limits the ability of either party to renegotiate terms that otherwise might have been changeable according to discretion. 

 

For employers, adjusting to changing economic demands can sometimes be difficult because they must factor in the set requirements listed in the contract like wages and employee benefits. Employees may sometimes find it difficult to change employment if they have agreed to a set time period in the contract.   

 

Another disadvantage of using an employment agreement is that once the contract is finalized, it creates an implied covenant to act in good faith and fair dealing. This obligation is binding on both parties. It can lead to legal penalties if either party breaches the good faith and fair dealing requirement, for example by acting dishonestly toward the other party. 

Should I contact a lawyer regarding employment agreement issues?

Employment agreements are binding and have their share of both benefits and drawbacks. The decision to enter into one should not be taken lightly. If you need advice on whether to enter into an employment agreement, you should contact an employment lawyer. They will be able to provide you with valuable services whether you are an employer or an employee in need of an employment agreement. 

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