Employment Contract

What is a contract of employment?

A contract of employment (or employment contract) is an agreement of hire extended from an employer to an employee. It’s often a written document used to set the terms and conditions of their employment—but it can also be verbal.

An employment contract may include the following:

employee-records-1

Why is an employment contract important?

A well-written employment contract can benefit both an employer and an employee. For example, it can:

How do you write up a contract of employment?

Each contract of employment should be flexible while reflecting the requirements of your business and the individual employee’s role. You should be prepared to negotiate salary and other terms and be well-equipped to handle employee disputes and the necessary documentation.

Employment contracts should cover all aspects of an employee-employer relationship. Here’s an example of the sections to include:

Job description

The job description is a brief outline of a given role. It includes the job title and a description of the duties expected of the position. It allows both the employee and employer to clarify and negotiate on responsibilities stated in the contract. Our job description templates can help you get started or be used for inspiration.

Compensation

This details whether the employee will be salaried or on an hourly wage and how much compensation has been agreed upon. You’ll also want to establish pay frequency—weekly, bi-weekly, or monthly, for example.

The relationship between parties

Three kinds of employee-employer relationships can feature in an employment contract.

Duration of employment

The starting day and time should be noted on the work contract, as well as the employment status and type—such as permanent, temporary, full-time, or part-time. The location of employment should also be listed, as well as a contingency plan in case of an emergency that prevents the employee from working at that location.

If there’s an end date to the employment, that should also be shown in the contract, as well as any opportunities for extension.

Benefits

All benefits, including vacation days, paid holidays, and insurance plans should be outlined in the employee contract. If there’s an opportunity for advancement and salary raises, that should also be made clear.

Termination protocols

Even if a contract includes a fixed term of employment, the employee can still be terminated at the employer’s will or decide to terminate the employment themselves. The contract should also outline the offboarding process that occurs once termination is set in place and what the employee can and can’t do.

Resignation

If an employee resigns, they usually agree to receive their salary through the last day they worked. In their contract, they could also be entitled to a guaranteed bonus or commissions that may fall after their end date.

“Good reason” resignation

If an employer can't pay an employee or there's a change in corporate structure, employees may be subject to “good reason” termination. Most of the time, this form of resignation means the employer will have to give some form of compensation to the employee.

Termination “for cause”

“For cause” termination occurs when an employer ends the contract prematurely due to actions performed by the employee. These causes should be outlined in the contract and could include circumstances like intentional misconduct, breach of employment contract, job abandonment, or a felony charge. Employees usually receive their salary only through their termination date and receive no further compensation.

Termination “without cause”

If an employer terminates the employee for a reason that’s not included in the “for cause” section of the contract, it’s considered termination “without cause.” As with termination “for cause,” this type of termination results in the employee receiving wages only up to their termination date.

Death or disability

If the employee dies or becomes disabled while employed and is unable to work, the employer will outline what compensation will fall to the employee’s estate.

Confidentiality

Many employment contracts will outline what can and can’t be said about the company’s practices to protect trade secrets, business information, and intellectual property. Some companies may ask employees to sign a Non-Disclosure Agreement (NDA).

Dispute resolution

In the event of a contract dispute, a work contract will outline how the two parties can come to an agreement. This contract also explains the arbitration process and how an attorney will be paid.

Religious and educational needs

The contract should note that employees are allowed to participate in any religious or educational activities as needed and that their beliefs will be respected.

Who needs an employment contract?

Any employer, human resource manager, and recruitment officer should present an employment contract to new hires, recruits, and current employees who are changing job positions.

While not all jobs require a candidate to sign an employee contract before employment, it’s a good opportunity to clearly state your expectations. It also extends legal protections to both parties.

There are a few specific instances where employment contracts (and their negotiated terms) are especially important:

You may also decide that a job contract is necessary if:

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 can provide organization and structure in the hiring process and working environment. For employees, a written contract offers a sense of stability and security.

However, there are some disadvantages to a written work contract agreement. For either party, it may limit flexibility and affect negotiations. Employment contracts are often legally binding, so there can be severe consequences for breaking them.

Types of employment contracts

There are a few different types of employment contracts an employer can establish when hiring and setting the terms of employment with a new employee.

The type of employment contract an employer chooses depends on what works best for the business and their employment situation.

At-will employment contracts

Written employment contracts

Verbal employment contracts

The type of employment contract you need depends on the type of work and how you want to structure your employee contracts. Ensure you take the necessary steps to hire employees and understand the implications of each type of employment contract.

onboarding-1