What Is an Employment Contract?

An employment contract is a written or verbal agreement that clearly outlines the terms and conditions of employment. There are several types of employment contracts, including written and implied contracts. A good contract details the obligations and responsibilities of both the employer and the employee, plus pay rates, holidays, and other relevant information.

What information is included in an employment contract?

Most employment contracts outline the ins and outs of a job while touching on various legal requirements. Some things you may find in the terms of an employment contract include the following. 

• A job title
• A description of employee responsibilities
• The commencement date
• The duration of employment (can be indeterminate)
• Company policies and rules
• Confidentiality agreements
• Dispute-resolution procedures
• Compensation and benefits, including information about holidays
• Salary and wage information
• Non-compete agreements
• Non-disclosure agreements
• Any other terms of employment

Employment contracts can vary from simple single-page outlines with a few lines of text to huge legal documents with tens or even hundreds of pages. Simple jobs generally have shorter, more basic contracts. 

What are the different types of employment contracts?

There are three main types of employment contracts, although you may be offered a mix in some cases. Written and at-will contracts are the safest and most commonly used in the US, but implied contracts are still legally binding—when they can be proven! 

Written contracts

The most common type of employment contract is a written contract, which usually outlines the terms and conditions of employment in a clear, succinct manner. It’s essential to read through your contract carefully before you sign it, as it will be legally binding.

There may be legal consequences if you breach a signed contract as either employee or employer. Because of this, we recommend seeking legal advice before either finalizing or signing anything other than the simplest employment contracts. 

Every aspect of a written contract must be complied with, including confidentiality and noncompete agreements. Ensure that these conditions are favorable, and make sure you will be able to stay in your new job for the length of the contract term. 

At-will contracts

At-will contracts are a specific type of written contract. With an at-will contract, employees can quit or have their employment terminated without notice. This type of contract usually has simple terms, and it’s used widely across America. 

It’s important to note here that employees still can’t be fired due to discrimination, racism, sexism, or any other protected reason, even if they’re only on an at-will contract. 

Implied contracts

Implied employment contracts occur when there’s an oral agreement or when terms can be reasonably inferred from a conversation or documentation. They are legally binding, but they can be difficult to prove without a recording or other documentation. 

A good example of an implied contract is when an employee is offered certain benefits during the interview process. If employees can reasonably believe that these benefits come as part of the job from this conversation, it’s the employer’s responsibility to ensure they provide them. 

Pros and cons of employment contracts 

In most situations, employment contracts are great. They outline the terms of employment, protecting both parties if there’s a dispute. However, they have their negatives as well, so here we’ve taken a closer look at both the pros and cons of using an employment contract. 

Pros of employment contracts

• Provides legal protection for employers and employees
• Ensures employees know what their role involves
• Clearly outlines responsibilities, salary/wage, and benefits
• Gives better job security to employers
• Enables companies to protect sensitive information

If you’re an employer, offering attractive contracts can also help you draw skilled candidates when you advertise for a position. 

Cons of employment contracts

• Flexibility is limited for both parties
• Terms can’t be changed without renegotiation
• Agreements are legally binding and can’t be broken easily

The main downside of an employment contract is that it limits flexibility for both employers and employees. However, at-will contracts can be used to add an extra layer of flexibility as required. 

How to write an employment contract

We’d recommend hiring a legal professional to help you write your employment contract. Since contracts are binding documents, it’s important to ensure that they are clear and cover everything required. 

All employment contracts should clearly name the parties entering into the agreement, provide at least basic terms and conditions, and touch on compensation details. Some important sections to consider adding to your contract include the following. 

General description

Begin by providing a general of the position. You might like to include information about general responsibilities and what the position involves. There’s no need for an exhaustive list of tasks here, but you should provide a general overview.

Wage and salary information

All contracts should contain information about pay rates. Some employees will be on a salary, while others will have an hourly wage. Employers, it’s important to ensure you’re meeting federal and state legal requirements here and paying at least the minimum wage. 

We’d also suggest adding information about sick pay, benefits, bonuses, holidays, and how payments will be made. 

Duration of employment

An employment contract may have a clear duration of employment. This could be as short as a few weeks or as much as a year or more. The majority of contracts are at-will or indeterminate, which means that an employee can quit or be terminated at any time without reason. 

Schedule

This isn’t always necessary, but some contracts include an outline of expected work hours. For example, your contract may state that an employee needs to be able to take weekend shifts at least twice per month or that they need to be able to work a specific night of the week. 

Benefits

If you’re advertising a position with extensive benefits, these need to be clearly outlined in the contract. This could include things like medical coverage, extra paid leave, performance benefits, and any other perks that come with the job. 

Confidentiality and non-compete agreements

You may like to add a confidentiality agreement to your contract if an employee is going to be working with sensitive information. Noncompete agreements are quite common, and they prevent employees from leaving your company and working with a competitor for a specified length of time. 

Rules for the ending of employment

Many contracts include information and policies regarding early termination. For example, an employee may have their contract terminated if they break the terms of employment or if a company is changing its focus and no longer has an open position. Rules for causes of termination should be clearly laid out. 

The contract should also outline the process for an employee to resign and explain how severance pay and other financial compensation work in various cases, such as if the employee resigns, is terminated with cause or without, or even passes away. 

Dispute resolution

Last but certainly not least, many employment contracts come with details about dispute resolution. The contract should outline how any legal fees will be paid and what the arbitration process will involve. 

When is an employment contract needed? 

For most basic positions, as an employee, you won’t have to sign an employment contract. However, if you’re applying for a long-term position with benefits or that requires special skills, you can expect a contract to be in place. 

Some example situations in which a company is likely to involve employment contracts: 

• When it’s hiring for a skilled position that would be difficult to fill again
• When you’re going to be working with confidential or sensitive information
• When a business wants to lock an employee into a long-term position
• When there is a need for a non-compete agreement
• When either party wants to have a formal agreement in place to outline the terms and conditions of employment

There’s never any harm in using a simple contract, as it can provide at least basic legal protection for both parties. 

Conclusion

An employment contract is a legally binding document that outlines the terms and conditions of employment. Not all positions require a contract, but having one ensures a level of protection for both employers and employees. 

There are different types of contracts, including written and implied. If you need to put together a new employment contract or are planning on signing a particularly complicated one as an employee, we’d suggest seeking assistance from a legal professional to ensure you cover all the bases.