An employment contract is a written legal document that lays out the binding terms and conditions of employment between an employee and an employer. Employers don’t have to enter into a written contracts with every employee they hire. In fact, written employment contracts are generally the exception rather than the rule. In some situations, however, it makes sense for an employer to ask an employee to sign an employment contract.
In addition to clearly describing the job that the employee is going to do and what kind of compensation the employee will receive (salary), the contract can address other aspects of the employment relationship. These other aspects include the duration of the job (six months, one year, or indefinitely); information about the employee’s responsibilities; benefits (health insurance, vacation, etc.); protection of trade secrets; and methods for resolving any disputes that arise about the agreement.
#1. Employment contracts are advantageous for companies who want control over an employee’s ability to leave the business. For instance, if finding and training the employee will be time-consuming, and you’re afraid they might leave and you’ll have to replace them soon after, you might want a written contract. The terms of the contract can require the employee to work for the company for a specified period of time (one year), or it can require them to give enough notice to find and train a suitable replacement.
#2. It might make sense to sign an employment contract if the employee will be privy to confidential and sensitive information about your business. Confidentiality clauses can be inserted into the agreement that will prevent the employee from competing against your company after leaving.
#3. By promising attractive benefits in an employment contract, a desirable candidate might choose to come work for you over the competition. Employment contracts can “sweeten the deal” in this way.
#4. Employment contracts can give employers greater control over the employee. If the contract specifies standards for the employee’s performance and grounds for termination, it may be easier to terminate an employee who doesn’t live up to the company’s standards.
#1. Employment contracts can limit an employer’s flexibility. If you later decide that you don’t like the terms of the employment contract, or if the needs of your business change, the contract could pose a problem.
For example, say the terms of your employment contract state that an employee will work for the company for two years. If the needs of your company change and you only need the employee for six months, you can’t simply terminate the employee. That would be breach of contract. In this case, the only way to change the terms of the contract is to renegotiate it, but to do that, you need the consent of the employee and the process is time-consuming.
#2. Employment contracts bring with them a special obligation to deal with the employee fairly. In legalese, this is called the “covenant of good faith and fair dealing.” If the judge or jury finds that you’ve treated the employee unfairly, you may be legally responsible for not only violating the employment contract, but for breaching your duty to act in good faith.
To schedule your consultation with Mike McColloch, please contact him at (760) 632-1100 or through his online contact form.