Employment contracts are agreements between employers and employees that clearly outline the rights, responsibilities, and obligations of all involved parties during the time an employee works at the company.

An Overview of Employment Contracts

The contract may include the following information: 

  • Compensation 
  • Job duties and descriptions
  • Vacation time 
  • Confidentiality duties 
  • Probationary periods 
  • Termination procedures 
  • Details about employee and employer

The following are likely to use employment contracts: 

  • Human Resource department managers 
  • Employers 
  • Recruitment officers 
  • Employees/new hires with companies that don't have any type of job contract

The contract is a written legal document containing binding terms and conditions concerning the job relationship between an employer and an employee. There are differences in employment contracts in the public vs. private sector because contract goals differ in each sector.

The contract could be in a traditional, written form, with signatures from all involved parties. More often, employment agreements are "implied” through the following: 

  • Verbal statements or actions 
  • Employee handbooks or company memos 
  • Adopted policies during the employment period

Employees often use the contracts to show that the employer's right to fire them was limited.

Many states consider employment to be “at will," which means an employer can fire an employee at any time. Employees are also free to quit at any time. Companies may have employees sign a handbook acknowledgment or other document stating their knowledge of their at-will employment. These documents don't have the same limits on terminating employees that regular employment contracts do.

Many states also recognize certain verbal statements made by employers to be binding. An example is, “You'll work here as long as you meet your sales quotas.” Verbal contracts often have limited enforceability, however.

Some states recognize implied contracts of employment, or a "course of dealing" for a period of time. For example, an employer may employ workers as long as they maintain a  certain standard of performance. Because of this, employees may claim they can't be terminated as long as they meet those standards.

Whether they're written or implied, employment contracts may detail terms and conditions related to the following: 

  • Health benefits 
  • Sick leave 
  • Vacation time 
  • Employee grievance procedures 
  • Post-termination employee behavior 

The scope of the agreement shouldn't be broader than necessary to protect the employer's company.

While a non-compete clause might be imposed as a condition for hire on a new employee, if it's imposed on existing employees, employers must supply some benefits beyond a promise of continued employment. Such benefits may include bonus payments, a raise, or better commission terms.

Employers don't have to draft written contacts for every employee they hire. Some situations make more sense than others when it comes to entering into an employment contract.

Examples of Common Clauses

The types of clauses you'll often find in employment contracts include the following: 

These clauses are designed to protect the employer in various circumstances that could lead to a loss of business for the company or a loss of employees and/or trade secrets. Any clause included in an employment contract has to be reasonable and fair to all involved. It must also be legal to be considered enforceable in court.

A confidentiality clause is one in which employees agree to keep secret specific details about the business or the company's secret plans, methods, processes, formulas, machinery, or data. In many cases, confidentiality agreements last after employees leave the company.

Make sure you're clear on the terms of a confidentiality clause, whether it's indefinite — which could be until the information becomes public domain property — or it has an expiration date, such as three years after the contract ends.

An ownership clause usually applies to employees whose job description includes inventing things. Employees agree that anything they invent at work belongs to the company. In addition, employees usually agree to help the company get inventions patented and to keep information about the invention confidential.

Not every job requires an employment contract, but for certain situations and recruits, a company may find it necessary to enter into such an agreement. All involved parties should read over the contract carefully so that everyone is clear on their rights and responsibilities.

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