Employment Contract: What It Is And Examples

The extension of a job offer does not guarantee a successful employment relationship. Both potential employers and employees face various associated risks in today’s dynamic job market.

Many employees leave their current company after receiving a job offer, only to find the offer rescinded or the position already filled. Employers also frequently manage employees who dispute their job duties and compensation levels.

A well-structured employment contract serves to protect the interests of both parties by clearly defining the agreed-upon terms.

In this article, we will help you understand what an employment contract is, how it functions, and its pros and cons. Additionally, you will receive a sample to assist you in drafting your own contract.

Key Takeaways:

• Employment contracts precisely outline the duties an employee is expected to perform, along with the compensation and treatment they can anticipate from their employer.

• Employment contracts can take various forms, including written contracts, implied contracts, labor union contracts, and verbal agreements.

• Common types of employer contracts include:

  • Full-time contract

  • Part-time contract

  • Freelance contract

  • Zero-hour contract

What Is an Employment Contract?

Employment contracts clearly define the responsibilities an employee must fulfill and the compensation and treatment they can expect from their employer.

Common conditions included in employment contracts are:

• Salary

• Job responsibilities

• Benefits

• Paid time off (PTO)

• Paid sick leave

• Sales commission

• Equity ownership

• Details of employment termination

• Other negotiated perks

As employment contracts are legally binding, both parties can proceed in their working relationship without relying solely on mutual trust.

While these documents generally adhere to a standard format, important distinctions exist between those created for private and public sector employment:

• Job Security: Many private-sector positions follow “at-will” employment laws, allowing employers to terminate employees for almost any reason, barring discriminatory factors such as race and gender. In contrast, government employees often enjoy increased job security due to stringent dismissal regulations.
• Competition: While confidentiality agreements are present in both sectors, the purpose varies. Government agencies use them for public security, whereas private firms utilize them to safeguard competitive advantages. Consequently, the terms of confidentiality in employment contracts can differ significantly.
• Unions and Workers’ Rights: Public sector employees are endowed with certain rights that are not universally granted in the private sector. However, government roles also tend to impose stricter regulations on union activities.

Employment contracts may also differ in specifics between independent contractors and permanent employees.

How Employment Contracts Work

Employment contracts come in various forms depending on the industry, company, and position.

1. Written Employment Contract: This formal agreement details specific employment terms, such as duties, pay, and benefits.

   • Most contract terms are standard practice; however, it’s essential to read through the details before signing.

   • Employers often include “fine print” agreements, such as arbitration policies, which may waive the employee’s right to sue in civil court.

   • If you disagree with any terms, seeking advice from a qualified attorney may be prudent before signing a potentially disadvantageous agreement.

   • When faced with questionable employment terms, it may be wise to decline the offer rather than contest the terms later.

2. Implied Employment Contract: This type of agreement is established through the behavior of both parties rather than being explicitly stated.

   Such contracts can arise from verbal promises made during interviews or from documents like job postings or letters of intent.

   Even though proving an implied contract can be challenging, it remains legally binding.

   Key factors considered in disputes include:

   • The employer’s staffing practices and policies.

   • The duration of employment.

   • Employer communications that assure the employee of specific terms.

   • Common industry practices.

3. Labor Union Contract: Labor unions negotiate multi-year agreements with employers to safeguard the interests of members.

   These contracts outline the obligations of the employer to union members and the terms of employment, covering aspects like salary, benefits, and termination clauses.

4. Verbal Contract: Verbal agreements can arise during discussions about employment particulars.

   For instance, a hiring manager might offer a position verbally. If accepted in the presence of witnesses, this can function as a legal contract, although such agreements are often difficult to enforce due to a lack of written documentation.

Types of Employer Contracts

The type of contract offered usually depends on the company’s needs, the nature of the work, and the employee’s status. Some common types of contracts include:

1. Full-time Contract: Offered to employees working 35 or more hours a week, these contracts typically include details about benefits, paid holidays, vacation, sick time, and retirement options. Written contracts are standard due to the numerous components involved, minimizing potential legal disputes.
2. Part-time Contract: Similar to full-time contracts, these are for employees working fewer than 35 hours a week. While they include stipulations similar to full-time contracts, they often lack benefits.
3. Freelance Contract: Designed for individuals hired to complete specific projects, these contracts define project details, payment terms, and limitations on hours worked. They typically do not include benefits since freelancers are classified as self-employed.
4. Casual Contract: These contracts are for seasonal or temporary workers, specifying that employees will only be paid for completed work without a guaranteed minimum number of shifts or hours.
5. Union Contract: Standardized agreements for members of labor unions, outlining job descriptions, vacation time, personal time off, and benefits, designed to advocate for and protect employee rights.
6. Zero-hour Contract: Offered to employees who work irregularly or only when needed, these contracts specify a maximum number of hours per month and allow employees to refuse work assignments when necessary.

Advantages and Disadvantages of an Employment Contract

Employment contracts present both advantages and disadvantages for both parties involved.

For an Employer

• Advantages for Employers:
  • Attract Top Talent: Offering competitive terms can make your organization more appealing to highly skilled candidates who may receive multiple offers.
  • Retain Valuable Workers: Employment contracts can limit the reasons employees resign early, helping to retain top-performing talent and reducing costly turnover.
  • Protect Business Interests: Non-compete agreements can prevent former employees from disclosing sensitive information to competitors.
• Disadvantages for Employers:
  • Administrative Costs: Tracking customized employment contracts can be costly and burdensome for HR departments, especially as the workforce grows.
  • Limits Your Ability to Fire Employees: Firing an underperforming employee can be complicated if they are under a contract, as it may violate the agreement.

For an Employee

• Advantages for Employees:
  • Job Security: Employment contracts provide employees with assurance, reducing the risk of unexpected job loss.
  • Levels the Playing Field: A binding contract offers employees greater protection in disputes over inferred terms.
  • Clearly Defines Duties and Benefits: Contracts alleviate the need for employees to frequently consult HR about their benefits and entitlements.
• Disadvantages for Employees:
  • Limits Job Flexibility: Employees may face restrictions on when they can resign or must follow specific procedures to do so.
  • Hidden Hazards: Employers may bury unfavorable terms in fine print, making them difficult to contest.

Example of an Employment Contract

Below is a sample employment contract to illustrate the main structure and elements involved.

If you are an employer, consider hiring a professional attorney to draft a legal document tailored to your specific needs.

Understanding the nuances of employment contracts can significantly enhance your hiring and job acceptance experience. By recognizing their importance, both employers and employees can navigate the complexities of the labor market more effectively and protect their respective interests.

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.