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Employment Contract: What Is It?

An employment contract is used when an employer enters into a contractual relationship with a person to provide certain services as an employee. It’s an alternative to at-will employment. However, when an employer and employee enter into an employment contract, the relationship between the two cannot be ended for any reason, as can be done in an at-will employment agreement. Rather, the employment contract is usually written to cover a specific period of time (and it may be renewable) and the relationship may only be ended for reasons listed within the contract or because the contract was breached.

Employment contracts must include all of the components that make up a legal contract. There must be an offer, acceptance, appropriate consideration offered, mutuality of obligation, parties must be legally competent and possess the capacity to enter into a contract, and (in many instances) it must be in writing. Although there is no definitive obligation that exists for every employment contract to be in writing, putting it in writing sets it apart from at-will employment and it gives the involved parties written descriptions of the obligations that they agree to uphold as part of the relationship.

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Contents of An Employment Agreement

Basic items that should be defined in an employment contract include, but are not necessarily limited to:

  • Details about the position. This may include the job title, the department, job responsibilities, and how the new employee will be evaluated.
  • Pay and benefits information. Will the employee be paid a salary or will they be paid hourly? What will the pay be? Are they entitled to overtime pay or do they meet a federal or state exemption based on their job responsibilities? This section will also include information about other benefits that the new employee will be entitled to receive and when they will be eligible to receive those benefits. Common benefits include paid time off, sick leave, tuition reimbursement, health insurance, disability insurance, and retirement.
  • Information about paid time off. This includes when the employee will begin accumulating paid time off, the types of paid time off they are entitled to receive (such as vacation, personal days, and sick days), whether the paid time off must be used by a certain time, and procedures on how the employee may request time off.
  • How the employee will be classified. Will the employee be classified as an actual employee of the company or will the company consider this person as a contractor?
  • Work schedule and length of the contract. This section will explain the days and hours the employee is expected to work and whether they are “on-call.” It will also specify the length of the contract and whether it is renewable.
  • Confidentiality agreement. This clause is generally state specific and limits the ability the employee has to disclose company information. In some instances, the confidentiality agreement is a separate document.
  • How the employment contract will be terminated. This section would include what is considered breach of contract along with how much notice must be given in order for either party to end the contract.

The employment contract should be dated and signed by a representative of the company who has the capacity to hire as well as the new employee. Both parties should keep a copy of the employment contract for their records.