Employment Contract Template: Everything You Need to Know
An employment contract template will help you create an employment contract, which is a document that outlines all of the rights, responsibilities, and obligations of the employer and the employee. 8 min read
What Is an Employment Contract Template?
An employment contract template will help you create an employment contract, which is a document that outlines all of the rights, responsibilities, and obligations of the employer and the employee. It usually includes information regarding payment, vacation, probationary periods, confidentiality, procedures for when employment is terminated, and information relevant to the employer and employee.
The employment contract is an important legal document for a business because it protects a business. It also confirms the relationship between the employer and employee and ensures that everyone is on the same page with regard to workplace policies. A contract also helps ensure that legal issues do not crop up later on while an employee works for an organization.
Think of the employment contract as an agreement between the employer and employee. Everything within this contract is agreed upon by each party and signed. It protects an employee's rights while laying out in clear detail what the employer is obligated to provide.
The employment contract is a first step in the hiring process and should be outlined with the employee before they begin work. It is typically drawn up during hiring and serves as a set of policies that are binding for both parties. Each side is given a set of guidelines that they can agree to and the contract serves as a resource to return to should any problems ever arise.
An employment contract also outlines the procedures for termination of employment. It specifies the situations under which an employer may terminate the employment as well as when an employee may choose to end their employment.
Unlike at-will employment, a contract goes through the specific reasons why employment may end on either side. At-will employment allows employers and employees to end the employment at any time for any reason. The employment contract is especially useful for higher-level positions such as a manager, vice-president, or anyone else that has a significant impact on the day-to-day running of the business or its structure.
Who Needs an Employment Contract?
Employers, human resource managers, and recruitment officers should consider using an employment contract when recruiting or bringing on a new hire, especially if they want to be clear about the responsibilities and obligations of both parties.
This is particularly true if employers do not have or have not previously used any form of employment contract.
Why Use an Employment Contact?
An employment contract enters into the hiring process once the employer is certain that they would like the employee to work with them. This comes after the submission of the employment application and resume.
After an interview is conducted, an employment contracted is drafted. An employee then meets with the employer to go over this contract and sign it. If there are revisions to the contract, it should be drafted again and signed by both parties to ensure accuracy.
Make sure that all aspects of the contract are discussed in detail and written down prior to the signing of the contract. This ensures that all aspects of the employment from salary to benefits and anything else is clear prior to work being started.
Types of Employment
The employer provides work to an employee. In exchange for doing this work an employee is compensated using a salary or wages for the services provided. Different employment types do exist. Examples of employment arrangements include:
- Permanent full-time employees - meet the requirements for full-time hours and have no set ending date to their employment.
- Part-time employees - meet the same requirements save that they aren't full time.
- Fixed-term employment - means that the employment will end on a specific date. The employer is not required to renew the contract and the employee does not have to agree to further employment.
At-will employment means that an employer does not have to have a reason to fire an employee. The only exception is a discriminatory practice of some kind. It is an acceptable thing to include in a contract except in the state of Montana.
A section regarding at will employment should be included in most standard employment contracts because it reduces questions about when or how an employee can be fired. It is beneficial to the business owner. In practice, an at-will agreement is typically presented as a clause in an offer letter or employee handbook as opposed to a contract.
At-will employment makes the termination process in a company somewhat easier. While making the decision to fire someone is not easy, at-will employment clauses protect an employer legally when faced with this decision.
What Is a Probationary Period?
A probationary period is a method of temporary employment. It is common practice for a newly hired employee to be hired temporarily on probation for a set amount of time. The length of time varies from employer to employer. Three months or longer is most common.
A probationary period is a useful tool for an employer because it allows them to decide whether or not the employee fits into the organization. During this time an employer assesses:
- Whether the employee can do the job they've been hired for.
- Whether the employee will assist the company in meeting its goals.
- How the employee will fit in over the long term and if they are able to stay long term.
At any point during the probationary period, the employer has the right to end the probationary employee's employment. The employee is not entitled to receive notice or severance pay at the time of the termination.
Non-Compete, Non-Solicitation, and Confidentiality Clauses
Non-compete, non-solicitation, and confidentiality clauses are common aspects of employment contracts. They are included as a means of protecting the employer from a variety of situations that may cause the loss of business, employees, and company secrets.
A non-compete clause prevents a competitor from hiring a former employee over a certain period of time after employment has ceased. Non-compete clauses also have other requirements such as not working in a certain location. They must be reasonable, though.
Non-competition clauses are drawn up between an employer and employee. These clauses state that anything the employee learns of the working relationship cannot be used to start a competing business entity for one to five years after employment ends.
A confidentiality clause or NDA keeps confidential work information private. Non-disclosures should be used in the State of California because non-competes do not apply there. Freelancers and contractors should sign an agreement with regard to confidentiality and the work product because a contract won't be provided. A work product clause dictates which person has legal ownership of the work completed by the employee. In this case, "work" translates to "products" such as written work or inventions.
It is important that you note in your employment contract if you're planning on having your new employee handle your social media accounts, because it will allow you to assert ownership over the likes, follows, and other work product that comes as a result of that social media work.
What Should You Include in Your Employment Contract?
The employment agreement will indicate the place of business and the process for performance reviews. The agreement will also point out that the employee had independent legal advice prior to executing the contract agreement or that the employee has willingly chosen not to obtain such advice.
The employment contract will indicate severability. Severability of contract explains that the parties agree that in the event any article or part of the contract is held to be unenforceable or invalid, then that article or part will become null, and all remaining provisions will remain in full force and effect.
Some employment agreements will note that (because of employer regulations adopted in the Immigration Reform and Control Act of 1986) within three (3) business days of starting a new position an employee will need to present a documentation demonstrating an authorization to work in the United States.
Ownership of Intellectual Property (or any property) will be clearly stated in an employment agreement. Successors will also be specified in a contract agreement.
Some employment contracts specify that any notice required or allowable, made under contract agreement, must be made in writing and sent by registered mail to the employee at his/her home address or to the employer at its principal headquarters, whichever the case may be.
It's important to clearly state how your employee gets paid, including the distribution of salaries, wages, tips, commissions, and/or any types of bonuses.
It's worth including what sorts of benefits you're offering your employee.
The employment contract should contain information about salary (a fixed sum, usually paid bi-weekly), wage (an hourly or daily amount), or commission (based on work output—this is common for sales people) and you can also choose a combination of commission and wage or salary.
If applicable, include how much each month you will contribute to the employee's insurance premiums (or what percentage).
An employment contract also outlines in a brief summary the details of what benefits the employee will have including common ones like:
- Paid time off
- Vacation time
- Disability Insurance
- Health Insurance
Specifying these details and expectations sets up a clear relationship between the employer and employee and reduces the chance of confusion or confrontations down the road.
Laying out the job responsibilities in the contract is essential to prevent miscommunications. The employment contract should indicate position title and detail the responsibilities of the employee's new job.
Most agreements include a section that explains what will happen in the event of a legal problem. A section about who pays for costs and where legal procedures will take place is also included. State law should also be mentioned in the contact. The law presiding over the contract is usually that of the state where the business is.
An employment contract should be signed and dated by the employer and employee. Both parties should have a copy for their records. A signature and date assist with legal enforcement if need be. The contract should be signed and dated before work begins.
Reasonable cause for termination outlines the basis on which the employer or employee may terminate the employment agreement. A common example of reasonable cause for termination is a violation of the rules laid out in the agreement or the employee handbook, this is commonly referred to as cause. Cause shall include but is not limited to employee's gross misconduct, material damage to the employer, or employee's willful breach of this agreement. Many employment contracts will stipulate the employee can be terminated for "cause", meaning the employee violated a vital rule or rules.
The employer may terminate a contract agreement and the employee's employment at any time, without notice or payment in lieu of notice, for sufficient cause. The employer may terminate a contract agreement upon the employee's death. The employment period will also be terminated on the date of "at-will'' termination by either employee or employer.
What Not to Include in an Employment Contract
A timeline of any sort reduces the leverage that an employer has when compared to using at-will employment. Laying out reasons for employment termination can also eat away at the protection that at-will employment provides.
There are three main differences between job offer letter and an employment contract:
- Offer letters are not the same as employment contracts. Unlike a contract, a letter is not enforceable by law and will not hold up in court.
- A contract, on the other hand, is enforceable in court because it has been drafted and signed by both parties.
- The letter often comes prior to a contract. After the offer in the letter is accepted, the contract is introduced and signed.
An offer letter should only officially offer a position to a potential hire and provide a salary figure. Any other details should go into an employment contract.
If you need help with employment contracts, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.