Contracts for employment are used to replace traditional agreements that are signed by both an employee and employer. Many times employment agreements are implied based on verbal statements or actions taken by the employee and employer. This can be through policies agreed upon during the employment or through employee handbooks or company memoranda. A good contract will define what the employee is expected to do.

What Is an Employment Contract?

The contract will also define what the employee can expect from the employer, which is often a salary. Other terms that can be included in the employment contract include the following: 

  • Benefits such as disability, health or life insurance, or retirement accounts. 
  • Grounds and reasons for employment. 
  • Non-disclosure agreements pertaining to a company's client lists or trade secrets
  • Assignment clauses regarding patents the employee produced during their time at the company. 
  • How to resolve employment disputes. 
  • What the terms of employment are (a period of time, for the length of a project, or indefinitely). 
  • Sick day and vacation policies. 
  • Responsibilities of the employee. 
  • Stating not to compete against certain companies if the employee leaves. 
  • An agreement stating any materials produced by the employee is owned by the company. 

An employment contract is also known as a contract of employment, job contract, employee contract, and employment agreement. This is what employees and employers use to outline the responsibilities, rights, and obligations of all parties during the period of employment. Employment contracts should be used by employees or new hires who don't have any kind of job contract. They should also be used by human resources managers, employers, or recruitment managers getting ready to recruit a new hire. This contract states the shared responsibilities and rights of the company and a contract employee.

An employment contract is often used when bringing in higher-level employees, freelancers, or short-term contract employees. The document is signed by both parties and is enforceable in court. The details of the job and the company should be clearly defined in the contract as well as employment terms and compensation

The terms of how the employee will be paid should also be described. They may pay their own taxes as a freelancer or they may be paid like a normal employee where taxes are deducted from their paycheck. Employment contracts should be written as opposed to implied. Shaking on an agreement causes complex issues if a misunderstanding happens.

Termination and "At-Will" Employment

Employment contracts are commonly used by employees to show the employer had a limited right to fire them. Employment is normally "at will" in most states. This means the employer can fire the employee at any time they wish. They may have limited rights to fire employees, however. This includes if the employee can prove a contract was made to keep the employee for a certain period of time or an implied contract was made where employment can only be terminated for a certain cause.

Some states acknowledge verbal statements employers make, such as "you can be here as long as your sales stay above budget." This creates a binding contract of employment.

Enforcing verbal contracts is limited sometimes due to the "statute of frauds." This states that oral agreements that do not get carried out within a year are no longer valid. A verbal contract needs to be detailed for it to be enforceable. Saying something like, "You can work here as long as you want," isn't enforceable. 

Some states acknowledge implied contracts where an employer keeps an employee on as long as they maintain a particular level of performance. Therefore, an employee can claim they can't be fired as long as they meet those standards.

Employees under contract aren't normally "at will" because the contract will state the specific reasons an employer can fire the employee. Some employees must sign a written agreement stating their employment is at will, which means they recognize an employer can fire them at any time as long as it's not for an illegal reason. Employers often have their employees sign an employee handbook acknowledgment so they recognize that their employment is at will.

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