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Employment Contract basics

 Reviewed by Rocket Lawyer On Call Attorney Anjie Flowers, Esq

New employer-employee relationships start off best with a good Employment Contract. These contracts outline the basics such as benefits and salary information as well as provisions to protect the employer.


Use the Employment Contract document if:

  • You are hiring a new employee and want to ensure that they understand the employment relationship.
  • You are hiring a new employee and you need them to sign a confidentiality agreement.
  • You need to communicate to your new employee that they are an "at-will" employee.
  • Thus far you've only had verbal employment agreements and need a formal agreement for your current employees.

Employee Contracts are two-way agreements intended to outline the basics of the employment relationship. It also includes specific provisions for protecting your company such as a confidentiality agreement and at-will employment information.


Other names for Employment Contract Document:

Employment Agreement, Employee Contract, Job Contract


What is included in the Employment Contract?

This Employment Agreement includes the standard provisions plus a confidentiality agreement. The major sections of this contract include:

Wage information
Some employers include specific wage information for the employee in this document, others do not and provide that information as a separate human resources document. If you do include it, you'll also want to include payroll schedule information and whether they are an hourly, salary or a commissioned employee or a combination thereof.

Benefits
Again, some choose to include this type of information in the Employee Handbook or other HR documents, but some include it in the Employment Contract. Benefits may include health insurance, information about paid time off, life insurance, disability insurance, company holidays and more.

Best efforts and compensation
This is the part of the agreement that basically says that the employee agrees to do their job to the best of their ability in good faith and that the employer will compensate them for their work. It also includes information about how they will be paid if they leave the company.

At-will and termination
Relates the "at-will" employment status and the process for leaving the company. You can include how many days' notice the employee must give to leave the company. If the contract is violated, it says the employer has the right to terminate employment without notice. It also makes note that company equipment must be returned upon termination or leaving the company.

Confidentiality
Here you can choose what type of information you want protected. You may just want to select them all. You have a choice of protecting information such as products, inventions, designs, processes, customer lists, pricing, trade secrets, and more. To be modern with "customer list" protection, a social media provision is also included. You can also set a time for how long they must keep confidences after they leave the company.


Employment Contract Tips

  • Attempt to keep it enduring. For example, you don't want to have to make another agreement every time you raise their salary or change payroll dates. You may also want to keep the job description brief as well.
  • Have your final versions that will be the template for other hires reviewed by an employment lawyer. Our contract is suitable for most states, but you'll want to ensure that it covers your state's specific laws and that any additions are beneficial to your company.
  • If you have an oral agreement or an "implied" agreement convert it to a written and signed agreement. A written contract is a good reference later and stands up in court better if needed.
  • At the signing table, be careful about implying or promising any things such as exact length of employment, when raises may occur or any mention of "job security." What you say vocally, could be construed as a formal agreement.
  • If you add additions to this contract in your own words, keep the grammar clear and wording straightforward. Don't assume the reader knows MLA, Chicago Style or legalese. Try not to leave any room for someone to imply something incorrectly.

What are at-will employment states?

Most states have some kind of "at-will" employment policy. At the federal level, all employment is at-will meaning either the employee or the employer can end the employment relationship for any reason. But some states have their own exceptions added to this labor law, for example some states will require a "just cause" on the employer's side for termination. An "at-will" section is included in this document. If you are not sure if your state has an exception to this federal employment law, see what states are at-will employment states.


Are Employee Contracts legally binding?

An Employee Contract is a two-sided agreement between the employer and the employee and yes, when signed by both parties, it is legally binding. In the simplest form, the agreement is that the employee agrees to work and that the employer agrees to pay them for that work. The contract can be terminated if either party does not fulfil their duties. As an employer to avoid issues, you'll want to ensure that you avoid any type of gray area or loopholes that could become a problem later. Once you compose your contract, you'll benefit from having your document reviewed by an employment lawyer to ensure that the document protects the company.


Employment Contract vs. Employee Handbook

The biggest difference between the two is that an Employment Contract applies to one employee specifically, whereas an Employee Handbook is given to all employees. Both may include information about benefits such as paid vacation days, health insurance and personal leave time. However, Employment Contracts include employee-specific information such as salary details.

This document is for employees, not contract workers. If you need an agreement between your company and a contract worker, see Independent Contractor Agreements. If you'd like to learn more about human resources, we provide a Human Resources 101 guide.


Sample Employment Contract

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Employment Contract basics

Employee Contracts are two-way agreements intended to outline the basics of the employment relationship. It also includes specific provisions for protecting your company such as a confidentiality agreement and at-will employment information.


Other names for Employment Contract Document:

Employment Agreement, Employee Contract, Job Contract


What is included in the Employment Contract?

This Employment Agreement includes the standard provisions plus a confidentiality agreement. The major sections of this contract include:

Wage information
Some employers include specific wage information for the employee in this document, others do not and provide that information as a separate human resources document. If you do include it, you'll also want to include payroll schedule information and whether they are an hourly, salary or a commissioned employee or a combination thereof.

Benefits
Again, some choose to include this type of information in the Employee Handbook or other HR documents, but some include it in the Employment Contract. Benefits may include health insurance, information about paid time off, life insurance, disability insurance, company holidays and more.

Best efforts and compensation
This is the part of the agreement that basically says that the employee agrees to do their job to the best of their ability in good faith and that the employer will compensate them for their work. It also includes information about how they will be paid if they leave the company.

At-will and termination
Relates the "at-will" employment status and the process for leaving the company. You can include how many days' notice the employee must give to leave the company. If the contract is violated, it says the employer has the right to terminate employment without notice. It also makes note that company equipment must be returned upon termination or leaving the company.

Confidentiality
Here you can choose what type of information you want protected. You may just want to select them all. You have a choice of protecting information such as products, inventions, designs, processes, customer lists, pricing, trade secrets, and more. To be modern with "customer list" protection, a social media provision is also included. You can also set a time for how long they must keep confidences after they leave the company.


Employment Contract Tips

  • Attempt to keep it enduring. For example, you don't want to have to make another agreement every time you raise their salary or change payroll dates. You may also want to keep the job description brief as well.
  • Have your final versions that will be the template for other hires reviewed by an employment lawyer. Our contract is suitable for most states, but you'll want to ensure that it covers your state's specific laws and that any additions are beneficial to your company.
  • If you have an oral agreement or an "implied" agreement convert it to a written and signed agreement. A written contract is a good reference later and stands up in court better if needed.
  • At the signing table, be careful about implying or promising any things such as exact length of employment, when raises may occur or any mention of "job security." What you say vocally, could be construed as a formal agreement.
  • If you add additions to this contract in your own words, keep the grammar clear and wording straightforward. Don't assume the reader knows MLA, Chicago Style or legalese. Try not to leave any room for someone to imply something incorrectly.

What are at-will employment states?

Most states have some kind of "at-will" employment policy. At the federal level, all employment is at-will meaning either the employee or the employer can end the employment relationship for any reason. But some states have their own exceptions added to this labor law, for example some states will require a "just cause" on the employer's side for termination. An "at-will" section is included in this document. If you are not sure if your state has an exception to this federal employment law, see what states are at-will employment states.


Are Employee Contracts legally binding?

An Employee Contract is a two-sided agreement between the employer and the employee and yes, when signed by both parties, it is legally binding. In the simplest form, the agreement is that the employee agrees to work and that the employer agrees to pay them for that work. The contract can be terminated if either party does not fulfil their duties. As an employer to avoid issues, you'll want to ensure that you avoid any type of gray area or loopholes that could become a problem later. Once you compose your contract, you'll benefit from having your document reviewed by an employment lawyer to ensure that the document protects the company.


Employment Contract vs. Employee Handbook

The biggest difference between the two is that an Employment Contract applies to one employee specifically, whereas an Employee Handbook is given to all employees. Both may include information about benefits such as paid vacation days, health insurance and personal leave time. However, Employment Contracts include employee-specific information such as salary details.

This document is for employees, not contract workers. If you need an agreement between your company and a contract worker, see Independent Contractor Agreements. If you'd like to learn more about human resources, we provide a Human Resources 101 guide.

Use the Employment Contract document if:
  • You are hiring a new employee and want to ensure that they understand the employment relationship.
  • You are hiring a new employee and you need them to sign a confidentiality agreement.
  • You need to communicate to your new employee that they are an "at-will" employee.
  • Thus far you've only had verbal employment agreements and need a formal agreement for your current employees.
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