An employment contract is a signed agreement between an individual employee and an employer or trade union. It establishes both the rights and obligations of two parties: the worker and the company.
Review what to expect when asked to sign a contract, the types of agreements that apply to employees in the workplace, and the pros and cons of a contract of labour.
What is an employment contract?
An employment contract is an agreement that covers the employment relationship between a company and an employee. It allows both parties to clearly understand their duties and terms of employment.
In particular, the employment contract may contain:
- Salary or Wages: Contracts will detail the wage, salary or commission that has been agreed upon.
- Schedule: In some cases, the employment contract will specify the days and hours when the employee is expected to work.
- Length of employment: The employment contract will specify the length of time the employee agrees to work for the company. In some cases, this may be an ongoing period. In other cases, it may be a fixed-term contract. In other cases, a minimum duration is established with the possibility of extending this period
- General Responsibilities: Contracts may specify various duties and tasks that the worker will perform during employment.
- Confidentiality: While you may be required to sign a separate nondisclosure agreement, some contracts contain confidentiality statements.
- Communications: If the employee’s role involves handling social media, websites or emails, the contract may state that the company retains ownership and control of all communications.
- Benefits: The contract should include all promised benefits, including (but not limited to): health insurance, 401k, vacation, and any other benefits that are part of the job.
- Future Competition: Sometimes a contract will contain a non-competition agreement or a non-competition clause (NCC). This is an agreement that, upon leaving the company, the employee will not take up a job that would put him in competition with the company. The employee will often be required to sign a separate NCC, but it may also be part of the employment contract.
Other possible terms of the agreement could be an ownership agreement (which states that the employer owns all work materials produced by the employee) as well as information on the resolution of labor disputes. An agreement may even qualify where the employee may work after leaving the company as a way to limit competition between related companies.
Types of employment contracts
You may come across different kinds of agreements depending on the job and the company.
Written employment contracts
A written contract is a great way to clearly define the role, responsibilities and benefits and avoid any confusion.
Before signing the employment contract, read all the details carefully. Make sure you’re comfortable with every part of the deal. If you breach the contract, there may be legal consequences.
If you are unsure about some of the details of the contract, get advice from a lawyer before signing it so you don’t commit yourself to a disadvantageous agreement.
It is important to make sure that you are able to comply with every part of the written contract. For example, if the contract requires you to stay on the job for a minimum period of time, make sure you will be able to meet this requirement.
If the contract places a restriction on where you can work after you leave the company, consider whether or not you are comfortable with that restriction.
Assumed employment contract
An implied employment contract is one that is inferred from comments made during a job interview or promotion or from something stated in a training manual or handbook.
For example:
Implied contracts can be inferred from the employer’s actions, statements or past.
An employee could see or record a history of promotions, raises, and annual reviews for themselves and their co-workers.
During the interview, the prospective employee may be told that the employee’s employment is a long-term or permanent position unless the employee is terminated for good cause.
Although implied contracts are difficult to prove, they are binding.
Employees can demonstrate that an implied contract was made by pointing to actions, statements, policies and practices of the company that led them to believe that the promise would be fulfilled.
Pros and cons of an employment contract Professionals
- It clearly defines responsibilities and benefits
- It protects each side
- Provides stability
- Disadvantages
- Limits flexibility
- Legally binding
- Can only be changed by renegotiation
Pros explained
- Clearly defines responsibilities and benefits: It’s no wonder what responsibilities are part of the job or what the pay or benefits are because they’re listed in the contract.
- Protects each party: The agreement applies to both employers and employees.
- Provides stability: With a signed employer contract, both the worker and the company know what to expect in the foreseeable future.
Disadvantages explained
- Limits flexibility: Once an employee is hired on a contract basis, they cannot just leave if they feel like it, and the employer cannot just let them go if they decide they no longer need them.
- Legal Binding: Violating the terms of the contract has consequences.
- Can only be changed by renegotiation: Both parties must agree to any changes to the original contract.
Key things
- An employment contract is an agreement between a company and an employee.
- Describes the role, responsibilities, pay and benefits.
- Employment contracts should be reviewed before signing, as there can be consequences if you don’t hold up your end of the contract.
