Employment Contract

An employment contract is a written legal document that lays out binding terms and conditions of an employment relationship between an employee and an employer.

Every employment contract is different. In a non-union setting, their level of detail depends on the persistence of the employee and employer who are negotiating the details of the contract.

In addition to clearly describing what the employee is going to do for you (the job) and what you are going to do for the employee (the salary), the contract can address many other aspects of the employment relationship, such as:

• duration of the job (one year, two years, or indefinitely)

• information about the employee's responsibilities

• what benefits (such as health insurance, vacation leave, disability leave, and so on) the employee will receive

• grounds for termination

• limitations on the employee's ability to compete with your business once the employee leaves

• protection of your trade secrets and client lists

• your ownership of the employee's work product (for example, if the employee writes books or invents gadgets for you), or

• a method for resolving any disputes that arise about the agreement.

Employment contracts can be very useful if you want control over the employee's ability to leave your business. For example, if finding or training a replacement will be very costly or time-consuming for your company, you might want a written contract. It can lock the employee into a specific term (for example, two years) or require the employee to give you enough notice to find and train a suitable replacement (for example, 90 days' notice). While you can't force someone to keep working for you, an employee is likely to comply with the agreement's terms if there's a penalty for not doing so.

Employment contracts might also make sense if the employee will be learning confidential and sensitive information about your business. You can insert confidentiality clauses that prevent the employee from disclosing the information or using it for personal gain. Similarly, a contract can protect you by preventing an employee from competing against you after leaving your company.

Sometimes, you can use an employment contract to entice a highly skilled candidate to come work for you instead of the competition. By promising the individual job security and beneficial terms in an employment contract, you can sweeten the deal.

Finally, using an employment contract can give you greater control over the employee. For example, if the contract specifies standards for the employee's performance and grounds for termination, you may have an easier time terminating an employee who doesn't live up to your standards.