An employment contract is an agreement that creates an employment relationship. A contract of employment should cover every aspect of a job, such as wages, holidays, sick leave, paid vacation, health benefits, and the duties of the employee. This written agreement helps protect the rights of the employee by the obligations of the employer.
This document should be completed before the new employee begins work. The contract should be carefully read so that the employee understands their obligations before starting work.
Written employment contracts can be beneficial whether you are a business owner or an employee. Having a contract in place before hiring can help businesses avoid legal issues down the road by ensuring everyone is on the same page when it comes to workplace policies, duties, pay, and benefits. A contract provides each party with a certain level of protection because its terms may limit the extent to which either may terminate employment.
This is different than the default alternative of at-will employment. Under this concept, both the employee and employer may end the employee's employment at any time for almost any reason. At will jobs are generally offered on the spot or an offer letter may be drafted by human resources. The letter will specify that the relationship is at will.
An employment contract consists of several main components:
There are a few ways you can go about drawing up your contract. A standard one contains the components described above. Although the details will differ from company to company, the basic outline is the same. You can hire an employment law attorney to write one for your business. You can save yourself time and effort by downloading a free employment contract template from a reputable site and filling it in. Unless the tenets of your agreement are extraordinarily different, this should work just as well as writing the whole thing out yourself.
Employment contracts are an essential element of the hiring process. This guide covers everything you need to know about drafting one (as an employer) and signing one (as an employee). While it may seem straightforward, if not properly written, many legal issues can arise. This guide covers how to write the contract, amending it (if necessary), the difference between an contract and a company handbook, the legality of verbal contracts, the various terms included (explicit and implied), and much more.
When a job applicant accepts a position, they may enter into a contract with the employer. While contracts of this type usually include written documents, they do not necessarily require specific documentation. They are much easier to enforce or dispute in court if they are created in writing.
Sometimes, the relationship between two parties creates an implied contract. Their relationship essentially proves that an employer/employee relationship exists, even if there's nothing in writing. Even if contracts are put in writing, their terms do not necessarily override an employee’s rights.
Additionally, an employer cannot change an executed contract without the permission of the employee. Employees must be informed of any changes to the contract in writing within a month of the proposed change.
While contracts and handbooks have a lot in common, handbooks provide more detail about company policies than contracts. Contracts are written to specifically cover the job duties of a single employee.
There is no legal requirement for an employer to use a contract for any new hire. However, employers must furnish an employee with a written statement (generally referred to as a job offer) within two months of their start date. Failure to do so opens up employers to potential legal repercussion. If the job in question is short-term, spanning less than 2 months, employers must give an employee an agreement that explains the term before it ends.
If you need to change the terms of a contract related to a specific job, we recommend you speak to your employees. Explain the reasons you need to change the contract and see if you can reach an agreement with the employee. This encourages goodwill and allows employees to express their ideas related to the amendment.
If you can agree to changes, be sure to document the new terms of the contract. Both parties should date and sign the new contract or amended sections.
If employees do not agree to amend their contract, you have the following options:
The following list includes the essential contractual components of this sort of contract:
There are several implied terms involved in the contract, regardless of whether they are put in writing. Those include:
We do not recommend verbal agreements; all contracts should be put in writing. Putting contracts in writing protects you if you're sued over the contract. A written contract reduces the likelihood of misunderstandings and a “he said / she said” situation.
With that in mind, an oral contract is legally binding, if you can prove one was made.
As an employee, if you are given a verbal contract, you are still entitled to a written statement of employment. It should include the same details and terms as any other employment offer. At the very least, the existence of the statement can prove that you were offered a position with the company. Whether oral or in writing, you shouldn't enter into a contract unless you can do so in good faith.
There are several common issues with these contracts you want to avoid. Those include:
Contact employees are becoming increasingly popular in many industries. There are important distinctions between contract and permanent employees. They include:
Many employers permit, or even encourage, their employees to work remotely. However, if you plan to offer that option to your workers, it is important to have a clear policy in place to ensure that your expectations and guidelines are clear to any employee who may want to utilize the policy.
Your remote work policy should be an addition to the standard contract. However, due to the nature of remote work, or for entirely remote positions, the remote work contract may contradict elements of the employee contract. Be sure to address which document supersedes the other in the event of a contradiction. Areas with likely contradiction include hours of work, where to report to work, confidentiality, conduct, etc.
Arbitration clauses prevent employees from suing their employers. This issue recently made national headlines with the reporting of numerous allegations of sexual harassment and gender discrimination claims. By signing arbitration clauses, employees forfeit their right to sue their employer, waive their right to appeal, and often forfeit the right to participate in a class action lawsuit.
Arbiters are less expensive (generally!) than hiring a lawyer and going to trial. Generally, an arbitration agreement says that both parties will determine which third party arbitrator to use. Some arbitration agreements specifically state who will be responsible for the cost.
An employment contract has the potential to link an employee’s responsibilities to the greater mission of the company. However, employers often fail to highlight this link.
For example, a survey by Robert Half Management Resources found that less than half of employees indicated they always understand the role of their work in their company’s mission. Additionally, 64% of respondents aged 18-34 indicated they wanted clarification regarding how their daily responsibilities impact the company.
Similarly, an extensive study by Stanford University found that contracts contained language explaining the connection spent more time on tasks and generated more original ideas: https://www.gsb.stanford.edu/insights/beware-workplace-policies-kill-motivation
Here are some important tips for negotiating contracts with your employees.
Employee contracts are the first, and one of the most important, agreements your business will enter into with your workforce. They establish a relationship with employers and their workers and set a tone for the nature of that relationship moving forward. It’s imperative that you handle the contract process and negotiations with thought, specificity, and care. It is also important you avoid mishandling the contract process in a manner that could lead to legal action. We hope provides you with the tools you need to do so.
Forced Arbitration by State
Our team created a ranking of US states with the greatest number of businesses who have forced arbitration agreements and class action waivers included in their employment contracts. Based on research that determined the percentage of small and large private sector firms with these clauses in the US, we calculated totals by state and ranked them from most to least.
How Forced Arbitration Loses to Litigation in America
Our team wanted to see how difficult it was for an employee to win a claim against an employer in forced arbitration versus litigation. We determined a final percentage for the level of ease for each by weighting the following factors evenly into a total score: acceptance rate for case, employee win rate, % of claim awarded to employee if ruled in favor of, # of small settlements won, # of large settlements won, and employee win rates for claims based on sex, disability, race, and sexual orientation.
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