A job is not only about knowing what you must do and how much you will get paid for it. There are job particulars that must be set. If you are presented with an employment contract, read and understand before signing on the dotted line.
What is an employment contract?
An employment contract refers to an agreement between an employer and an employee. The coverage of an employment contract pertains to the work arrangement, obligations, and terms of hire offered by the company to an individual employee.
The exact details of an employment contract vary from one company to another. However, most employment contracts contain the following sections:
Date of effectivity or commencement date;
Job title and description;
Company policies, rules, and regulations;
Termination of employment;
Other provisions and terms of the agreement;
Are there other names for the employment contract?
Yes, an employment contract is also known as a “contract of employment” or “employment agreement”. All these terms are used interchangeably.
Why is an employment contract important?
An employment contract offers benefits for both the employer and employee. With an employment contract, there is no guessing game. An employee will not wonder what the exact job expectations are or if the employer will give a bonus. Similarly, the employer can also set job expectations, payment arrangements, and more. All obligations, duties, wages, benefits, and other terms are defined.
Additionally, an employment contract can serve as a reference for concerns or clarifications. It protects the employer, employer, and the company. For example, if the employee will learn about sensitive business information, trade secrets, and technique, an employment contract can protect the company through confidentiality clauses. Lastly, having an employment contract in place offers a level of job security and stability since both the employer and employee know what to expect.
What are the potential drawbacks of an employment contract?
Since an employment contract is binding, it can take away the flexibility of both the employee and the employer. For example, if the employee discovers that they are not happy with the job and would like to pursue something else, they cannot just leave when they want. They must follow the employment contract and check the provisions on leaving the organization. If the employee then decides to leave without following the terms of the employment contract, this can be considered a breach of contract and may have legal ramifications.
For employers, they cannot just change the employment contract to adapt to business changes. Any change or amendment in an employment contract should be done via a renegotiation.
Overall, the employer must weigh the advantages and disadvantages of having an employment contract in place. The decision to have one or not will greatly depend on the business needs as well as plans for scaling in the future.
Are all employment contracts required to be written and signed?
There are both advantages and disadvantages of having a written employment contract in place. While it is generally more standard that an employment contract is put into writing and signed, it is still possible to agree on a contract verbally.
What are the different types of employment contracts?
If you are a business owner, there are several contract arrangements that you can set when it comes to hiring and setting terms of employment of new employees. Consider what will work best for your business and employment situation. As an employer, you must also take note of and understand the implications of the different types of employment contracts.
The following are the general types of employment contracts that you can use:
At-Will Employment Contracts. There are the most common employment contracts in the U.S. Having an at-will employment contract allows an employee to quit anytime and for any reason. Similarly, an at-will contract also allows an employer to terminate or fire an employee for any reason that is not illegal or discriminatory. Employers cannot terminate an employee for protected reasons, discrimination, or retaliation.
Written Employment Contracts. These contracts contain more details compared with at-will contracts. The content of written employment contracts depends on the terms set by the employer and usually commence and end on a specific period. One of the highlights of written employment contracts is that they outline the specific terms of termination. This means that, unlike at-will contracts, an employer cannot just fire an employee. They can only do so if the employee goes against or violates the written employment contract’s terms.
Oral Employment Contracts. Sometimes called “verbal contracts”, an oral employment contract is an agreement that, as the term implies, spoken or said aloud. The agreement is not put into writing. The primary disadvantage of an oral employment contract is that it can be difficult to prove its terms and conditions if need be. Because the terms of the contract were discussed verbally, the retained information may not be uniform. An employer might remember things differently than an employee. In proving an oral employment contract, it can come down to one individual’s word against another’s.
Implied Oral Contracts. This type of contract is based on the decision of a court of law. This can be a combination of both oral and written employment contracts. It can be partially written but is mostly based on circumstances that are used to discern if a contract exists.
Who uses an employment contract?
Employment contracts are needed by both employers and employees. Human Resources professionals, especially those involved in recruitment, use employment contracts in hiring new employees and workers. They are also used for existing employees who are shifting to a different position, department, or if there are contract renegotiations. Employment contracts are especially crucial in managing senior roles where contracts are reviewed and negotiated by an employer-side attorney and an employee-side attorney. Employment contracts are also used for union-represented employees in both the public and private sectors.
What are the topics that an employment contract should cover?
When creating an employment contract, keep in mind that it should contain all the terms relevant to the employer-employee relationship. Determine the position and needs of the business.
The following are sections that are included in an employment contract:
Job Description. This includes a detailed list of all job responsibilities and requirements that the employee is expected to perform. This is a good opportunity for both the employer and employee to clarify the responsibilities.
Wages. The employer must decide if the employee will be salaried or will be on an hourly wage. This section also sets the payment period arrangement.
Employer-Employee Relationship. The employment contract can establish a specific work relationship between the parties. It can be:
At-Will Employment. The employer and employee can end the working relationship anytime with or without notice and for any legal reason.
Binding Authority. The employee is not allowed to bind the employer to any commitment or contract without written permission.
No Exclusivity. This means that both the employer and employee can enter into similar agreements with other parties.
Duration of Employment. The employment contract should state the date and time when the contract will commence. It should likewise indicate the specific type of employment. Will it be permanent, full-time, part-time, or seasonal? If the employment contract has an end date, the information should be stated. The same goes for any opportunities for extension. Other information such as the employment address where the employee will work is also included in this section.
Benefits. The employment contract indicates all types of benefits that the employee will be given. This includes any paid time off, leaves, holidays, retirement plans, insurance plans, etc. Salary advancement plans and salary raises are also defined.
Grounds for Early Termination. This section states the grounds when the employer can terminate the employment contract earlier than the end date. The financial consequences, as well as severance pay qualifications, are also included. There are five types under this section:
Resignation. If the employee voluntarily resigns, the usual arrangement is that they will receive their wages through the last day that they rendered work.
“Good Reason” Resignation. If in case the employer is unable to pay the employee’s wages because of a change in corporate structure, this can be a form of “good reason” termination where the employer will have to provide some form of compensation to the employee.
Termination “For Cause.” This type of termination happens when an employer ends the contract because of certain actions of the employee. These possible causes should be stated in the employment contract. These are typically intentional misconduct, breach of contract, job abandonment, etc.
Termination “Without Cause.” This happens when the employer ends the contract because of a reason that is not stated in the “for cause” section.
Death and Disability. In the unfortunate event that the employee becomes disable or passes away, the employer will define what compensation to give the bereaved.
Confidentiality. This section will outline specific company information, trade secrets, and techniques that are not to be disclosed. This is included to protect intellectual property and business information.
. In case of a need to resolve a dispute or any concern, this section will indicate ways by which the two parties can agree. It includes an explanation of the arbitration process and legal fees.
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