An employment agreement is a contract between an employer and employee that outlines the terms and conditions of the working relationship.
An employment agreement is also referred to as an employment contract, contract of employment, job contract, or employee contract.
The agreement is typically acknowledged and signed by the employer and employee after a new hire accepts their job offer. An employment agreement can be applied to part-time or full-time employees in both small businesses and enterprises.
What’s the purpose of an employment agreement?
The purpose of an employment agreement is to solidify a working relationship between employee and employer by defining the responsibilities and obligations of both parties. By using this type of contract, employers can improve the employee experience and mitigate legal risks.
- Provide new employees with a clear understanding of their position and job responsibilities
- Offer stronger job security to employees by protecting their employment status with a legally binding contract
- Streamline dispute resolution by using the agreement as a source of truth to resolve workplace issues and avoid the rise in workplace arbitration cases. For example, if there’s a dispute over the amount of paid time off an employee is entitled to, either party can refer to the agreement for clarification
- Protect the company’s confidential information, rights to contract termination, and more
What does an employment agreement contain?
In every agreement, the terms of employment should be tailored to the company, the employee’s job responsibilities, and the local employment laws. A member of the human resources team will typically create the employment agreement and include the following information:
- ID: Employee’s full name and address
- Role requirements: Job title and job duties
- Employment duration: Contract start date and end date (if contracted), and probationary period (usually 90 days)
- Compensation: Pay rate (hourly or annual salary), bonus structure, stock options, and pay dates
- Employee benefits: Such as health insurance, paid vacation time, retirement plans, dental insurance, life insurance, or disability insurance
- Performance review cycle: Outline when performance reviews are held, what will be discussed, and what rights employees have during the review process
- Termination clause: Defines how and why the employer can terminate the employee agreement, as well as the required notice period if the employee resigns. It also includes the best practices for returning company-owned equipment
- At-will employment clause: This clause states that the employer can terminate an employee agreement for any reason without warning, as long as the rationale is legal, and employees can resign for any reason without warning, as long as the rationale is legal. At-will employment is not legal in all countries
- Confidentiality agreement or non-disclosure agreement: Restricts employees from sharing confidential information, trade secrets, and intellectual property learned during their employment with unauthorized individuals
- Non-compete agreement: Employees agree not to work for a direct competitor during their employment or for a specific amount of time (typically one year) after they are terminated or resign
- Non-solicitation clause: Prohibits employees from soliciting clients or workers from the company during their employment or after the employee has been terminated or resigns. Applicable for a defined period of time (typically one year)
- Other employment terms as required for the role, company, or country
Types of employment agreements
Different types of employment contracts offer varying degrees of clarity, formality, and legal enforceability. The three most common are written contracts, implied contracts, and oral contracts.
Written employment contract
Written agreements are typically the most thorough type of employment contract as they list out the rights, rules, and obligations of both parties. These agreements can be created and signed digitally or in print form.
An employee can enter into an implied contract—or implied agreement—when they receive documentation related to their role that the employer expects them to abide by. For example, if an employer shares their company policy or employee handbook with a new hire, it’s implied the new hire will follow the rules and regulations within those documents, though they may not formally acknowledge or sign the documents.
An oral employment contract is a verbal agreement between an employer and employee. This type of employment agreement tends to be broad and includes basic information such as the pay rate, start date, and scope of work. Oral contracts are not formally filed and therefore difficult to enforce.
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