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An HR Glossary for HR Terms

Glossary of Human Resources Management and Employee Benefit Terms

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Employment Contract

What Is a Contract of Employment?

A contract of employment (or employment contract) is an agreement or term of hire that is extended from an employer to an employee. The terms of the employment contract may include the following:

  • Commencement date

  • Job title and description

  • Duration of employment

  • Employee compensation and benefits

  • Employer’s rules, regulations, policies, and practices

  • Confidentiality agreement

  • Non-compete clause

  • Dispute resolvement

  • Termination of Employment

  • Any other general provisions

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.

Types of Employment Contracts

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 Employment Contracts

  • 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 Employment Contracts

  • 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 Employment Contracts

  • 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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