Employment Contract: What It Is And Examples

The extension of a job offer doesn’t guarantee a successful employment relationship. Potential employers and employees both face numerous associated risks.

Many employees leave their current company after receiving a job offer, only to find the offer rescinded or the position already filled.

Employers also often deal with employees who dispute their job duties and level of compensation.

A well-written employment contract serves to protect the interests of both parties by legally defining any agreed-upon terms.

In this article, we’ll help you understand what an employment contract is and how they work. You’ll also learn their pros and cons, as well as receive a sample to help you draft your own.

What Is an Employment Contract?

Employment contracts spell out precisely what duties an employee is expected to perform, as well as the compensation and treatment they can expect to receive from their employer.

Example conditions often included are:

• Salary

• Job responsibilities

• Benefits

• Paid time off (PTO)

• Paid sick leave

• Sales commission

• Equity ownership

• Details of employment termination

• Other additional negotiated perks

As the employment contract is a legally-binding document, both parties can move forward in the employment relationship without having to rely solely on mutual trust.

Although these documents typically follow a standard format, there exist key differences between ones created for private and public sector jobs:

• Job Security. Many private-sector positions follow “at-will” employment laws, meaning employees can be fired for any reason other than discriminatory factors such as race and gender.

  Government workers, on the other hand, are often much harder to dismiss. There is a litany of rules detailing the process and conditions under which they may be fired.

  This difference affects what terms of employment termination are included in an employment contract.

• Competition. Confidentiality agreements can be found in both private and public sector roles. However, the interests of the two types of employers typically differ.

  Government agencies use NDAs mainly in the name of public security. Private companies use them to protect their work from competitors.

  Due to these differences, the terms of confidentiality found in employment contracts can vary in scope and length widely.

• Unions and workers’ rights. Public sector employees are granted certain rights that private-sector jobs don’t automatically provide.

  However, government positions also restrict union activity much more than their private-sector counterparts.

  These differences are often reflected in what items are included in an employment contract.

Employment contracts may also differ in various details between those employed as independent contractors versus permanent employees.

How Employment Contracts Work

There are various forms of employment contracts that depend on the industry, company, and position.

• Written Employment Contract. A written employment agreement details the specific terms of employment. Agreed upon elements such as the duties, pay, and benefits of the position are legally defined within.

  Most contract terms are simple, standard procedure. However, as the document is legally enforceable, it’s still important to read through each line before signing.

  It’s common for employers to include “fine print” agreements, such as an arbitration policy. This waives the employee’s right to sue in civil court, requiring any grievances to be resolved in private arbitration instead.

  If you don’t agree or understand any of the written terms, it may be wise to receive advice from an attorney before binding yourself to a potentially unfavorable agreement.

  When confronted with questionable terms of employment, it may be less risky to simply turn down a job offer rather than contest the terms at a later date.

• Implied Employment Contract. An implied employment contract is an agreement between an employer and employee formed through both parties’ behavior rather than written down.

  These may be spoken promises, such as ones made during an interview or through the phone. They may also be listed in a job posting, employee handbook, or letter of intent.

  Although the terms of an implied employment contract are hard to prove, they are legally binding.

  In the event that disputes are brought to court, several key factors are examined to determine if an implied contract existed between both parties.

  Example factors include:

  • The employer’s general staffing practices and policies.

  • The length of time the employee worked for that employer.

  • Communication or actions by the employer assuring the employee of the terms.

  • Common industry practices.

• Labor Union Contract. Labor unions often negotiate multi-year, bilateral agreements with employers to protect the interests of their members.

  These agreements codify a company’s obligations and responsibilities to union members they hire, as well as the terms and conditions of employment.

  Typical elements such as salary, benefits, and termination clauses are contained in these contracts.

Pros and Cons of an Employment Contract

Using an employment contract presents pros and cons for both parties in an employment relationship.

Employer Pros and Cons

• Advantages for employers include:

  • Attract top talent. Highly skilled candidates often receive more than one offer of employment. Offering beneficial terms and job security puts you ahead of competing firms.

  • Retain valuable workers. Employment contracts can limit the reasons for which employees can resign early.

    This helps retail top-performing talent and reduces costly, disruptive turnover.

  • Protect business interests. Many industries and companies require employees to access sensitive company information.

    A non-compete agreement prevents former employees from disclosing proprietary knowledge to a competitor.

    Employment contracts can also include a non-solicitation clause to prevent an employee from taking others with them when they resign.

• Disadvantages for employers include:

  • Administrative costs. Before any action your organization takes, your legal and HR departments must track each customized employment contract to ensure the terms of agreements aren’t breached.

    This becomes increasingly costly and burdensome as more employees are hired.

  • Limits your ability to fire employees. You’ll encounter employees who don’t perform up to expectations or simply aren’t a good fit.

    Unlike with “at-will” employment, you won’t be able to fire them easily without breaking the terms of the contract.

Employee Pros and Cons

• Advantages for employees include:

  • Job security. Losing a job can be extremely disruptive to an individual’s life.

    Many people have made major life decisions such as purchasing a home or quitting a previous position upon securing a job offer, only to receive a rejection letter soon after.

    Employment contracts ensure that both parties are held to their promises.

  • Levels the playing field. Disputes between employers and employees regarding inferred terms of agreement favor the employer, as they likely have greater legal resources.

    A binding contract offers much more protection to employees during such disagreements.

  • Clearly defines duties and benefits. An employment contract removes employees’ need to consult HR whenever they forget their paid time off, vacation days, or any other benefits and terms.

• Disadvantages for employees include:

  • Limits job flexibility. Once an employee is hired under an employment contract, they can’t simply resign whenever it suits them.

    You may have to wait a certain time or follow certain procedures before quitting your job.

    Some jobs may even require you to train a replacement following a submitted resignation letter.

  • Hidden hazards. Employers may hide unfavorable terms in a contract through small print or misleading language.

    Even if such tricks are not legally-binding, it can be challenging to have them thrown out in court.

Example of an Employment Contract

Here, we’ll provide you with a sample employment contract to help you understand the main structure and elements.

If you’re an employer, you may want to hire a professional attorney to draft you a legal document that fits your specific needs.

Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.