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An employment contract is used in the workplace as an agreement between an employee and an employer.

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Employment Contract: What Is It?

An employment contract is used in the workplace as an agreement between an employee and an employer. The contract can cover several different aspects of a job, such as wages, holidays, sick time, and benefits. An employment contract helps to protect the rights of the employee while also detailing what the employer is obligated to provide.

Any employment contracts that are going to be put in place should be completed before the employee begins work. The contract should be read carefully so that the employee understands what they are agreeing to before starting work.

Using an employment contract can be beneficial whether you are representing a company or if you are an employee. Having a contract in place beforehand can help you to avoid legal issues down the road by ensuring everyone is on the same page when it comes to different workplace policies.

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What is an employment contract?

What is an employment contract An employment contract is a legal document that establishes the rights and responsibilities of two parties – the employer and the employee. It is general drawn up at the time of hire and serves as a binding set of guidelines for the duration of the employment. An employment contract provides each party with a certain measure of protection, as its terms may limit the extent to which either may terminate employment. This is different than the default alternative of “at-will” employment, in which both employee and employer may end the employment at any time for pretty much any reason. Sometimes, an employer may ask an employee to sign an “at-will” agreement; however, as the tenets of “at-will” employment are fairly basic, this agreement is usually simply a clause of a signed offer letter or employee handbook, rather than a separate contract.

An employment contract consists of several main components –


This section details the responsibilities the employee’s new job entails.


This clause describes the benefits afforded the employee. Common benefits include vacation leave, disability insurance, and health insurance.

Duration of employment

Generally, this can entail anything from one year to “indefinitely.”

Reasonable reasons for termination

This outlines the bases on which the employer or employee may terminate the employment agreement. Common examples are violation of the rules laid out in the agreement or the employee handbook, this is commonly referred to as "cause". Many employment contracts will stipulate the employee can be terminated for "cause", meaning the employee violated a vital rule or rules.

Work Product

This clause dictates which person has legal ownership of the work completed by the employee. In this case, “work” translates to “products”, such as written work or inventions.

Non-disclosure clause

This is one case in which the employment contract gives an advantage to the employee. It stipulates which company information an employee may not reveal during or for a period following his or her employment. This generally includes trade secrets, classified methods, and client lists.  

Non-compete clause

This is another advantage an employment contract can grant an employer. Along with the non-disclosure clause, it prevents the employee from terminating employment and taking on an identical job straight away at a competitor. This protects any trade secrets to which the employee may have been made privy. A non-compete clause has a time limit and often a geographical one.

Dispute resolution

This outlines the procedures for resolving any dispute between employee and employer, or between the employee and another member of the company.

How do I create one?

There are a few ways you can go about drawing up your employment contract. Your standard employment contract contains the components described above; though the details differ, the basic outline is the same. You can save yourself time and effort by downloading a free employment contract template from a reputable site and just filling in the blanks. Unless the tenets of your agreement are extraordinarily unorthodox, this should work just as well as writing the whole thing out yourself.

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