An employment contract is an agreement that is formed between an employer and employee, and provides the terms of employment. Despite the fact that employee contracts are not entered into in every employer-employee scenario, it is often beneficial to have one because they can be used to clarify any disputes that may arise in such a relationship.
Once the employment contract is signed, it will become binding on both the employer and the employee. This simply means that if either party violates the terms of the contract, then they can be held legally responsible for their actions.
As with any contract, there are both advantages and disadvantages to having one. For instance, though a written contract can offer certain protections for both parties, it also simultaneously locks each party into an explicit agreement.
In general, an employment contract usually includes important details regarding the employee’s position, such as wages, benefits, termination procedures, and the duties and responsibilities of both the employer and the employee
Additionally, an employment contract will also typically address the following items:
- Job Title: The contract will usually include the employee’s job title and provide a full description of the position;
- Time Frame: A time frame may be added to the contract for anything ranging from a start date to an employee’s work schedule, to the length of a particular project and an employment end date (i.e., term of employment);
- Salary: An employment contract can specify the type of salary that the employee has (e.g., salaried, wage, and whether they can collect commission, and if so, how much, etc.);
- Benefits: The contract may also provide details concerning the types of benefits that the employee can receive (e.g., health insurance, 401K, dental, etc.);
- Vacation and Sick Leave: An employer may include its company’s policies for taking days off as part of the contract provisions, such as vacation or holiday breaks, and sick or disability leave;
- Confidentiality Clauses: A contract may contain confidentiality clauses, also known as non-disclosure agreements (NDAs), to ensure that an employee does not provide any proprietary information to competing parties;
- Dispute Resolutions: It may define a method for resolving employment disputes (e.g., arbitration or mediation);
- Termination: The contract may describe what actions are considered grounds for termination;
- Covenants Not to Compete: It may have provisions concerning covenants not to compete. These are clauses that basically prevent an employee from competing against their employer for a certain amount of time;
- Severance: A contract might discuss severance details, which involves any financial amount or other benefit that an employee may be entitled to when they vacate the position.
Although this list incorporates the majority of items that can be found in most employment contracts, it is not comprehensive. An employee and an employer can add any provisions they want to the contract, so long as the terms are not fraudulent, illegal, or against public policy.
One of the primary advantages of having an employment agreement is that it allows the parties to describe the employee’s position in great detail. This means that if the employer or employee wants to set a certain wage rate, for example, then the parties can specifically include this rate as part of the agreement.
Being able to incorporate this level of detail into the contract is crucial because it enables both parties to negotiate the terms until they find the perfect compromise. This feature is especially important for employers that need to protect particular trade secrets or copyright material.
Another advantage to having an employment contract is that if for some reason a dispute arises over a particular aspect of employment, the parties can simply review the terms of the contract. The written document can also be used as a form of evidence, if necessary.
Lastly, an employment agreement can create a positive relationship between the employer and the employee. Employers usually agree that an employment contract offers the employee a form of organization and structure in the work relationship.
As for employees, an employment agreement can provide a sense of stability and job security, especially if the agreement sets the time frame for their period of employment.
A main disadvantage to having an employment contract is that it may limit the flexibility of the employment arrangement. This makes it difficult for either party to renegotiate the contract’s terms.
An employee may also face challenges when attempting to change places of employment. This is due to the fact that the contract may set the time period for the employee’s position. If this is the case, then the employee will be locked in for that time frame until the period ends, or at least until the parties renegotiate the agreement, and the employer agrees to the new terms.
One final disadvantage to using an employment agreement is that it creates an implied promise to act honestly and fairly when dealing within the employer-employee relationship. This obligation is binding on both parties and can have legal consequences if either party breaches the contract’s requirements.
For example, a simple act of lying or acting dishonestly towards the other party, could potentially cause severe legal consequences.
As previously mentioned, there are many advantages and disadvantages to having an employment contract. Once it is signed, the document becomes legally binding. As such, you should strongly consider contacting an experienced contract attorney if you are entering into an employment contract.
A qualified contract attorney can review the contract to ensure that it is legally enforceable, provides you with the best available protective measures, and incorporates your rights as an employee. Additionally, an attorney can help you to negotiate the terms of an initial employment contract, or assist you in renegotiating the provisions of one already in existence, should you want to make any changes to it.
If you have been accused of breaching your employment contract, an attorney can also help you determine whether there are any defenses that you can use, as well as represent you in court, if necessary.
Finally, it is crucial that both parties retain a separate lawyer, so that the terms of the employment contract are both fair and just.