An employment contract is a signed agreement between an employee and an employer. A contract provides the basis for the rights and responsibilities of both the employee and the employer. By doing this, the terms and conditions of both parties are clearly established regarding the employment relationship.
Why are Employment Contracts Important?
A properly executed employment contract provides a written account of the agreement between the employer and the employee, affording both parties a clear understanding of their responsibilities, obligations, and duties to each other.
Although a verbal agreement of an employment relationship may constitute an employment contract (a handshake, perhaps), without a written employment contract it is difficult to prove the terms and conditions of the verbal agreement, especially if a conflict arises. A written employment contract is crucial to protect both parties and avoid future disputes.
Types of Employment Contracts
As discussed, employment contracts are an excellent way to define the responsibilities and benefits of the position that the worker is being hired for. This helps avoid any confusion on both sides of the agreement. There are a few different types of employment contracts, including written and implied.
Employers need to set out clear terms and conditions within the contract, and the employee is expected to read, understand, and sign the contract. Workers should also be made aware of what the consequences are if the expectations laid out in the contract are not met.
What’s Included in an Employment Contract?
To help protect both your new hire and your business, there are a few things that you must have in your employment contract. Here are some of the provisions that should be included (this is not an exhaustive list):
- Termination Clause –This provision sets out clear expectations for what is required by each party to terminate the relationship, including how much notice is required, what severance or outplacement plan is in place, and if there are any obligations after the employment relationship has terminated.
- Compensation and benefits – The contract should outline the compensation and benefits package related to the new hire’s position. It should include the hourly rate or annual salary, information regarding incentives or bonuses and how these may be obtained. All information about the benefits plan should also be included, such as dental, medical, eye care, etc. – and what percentage is paid by either the employee or employer. Also, any stock options or fringe benefits should be covered.
- Job information – Some key pieces of information needs to be right right away, such as the job title, hours, wages and the department or team that the new hire will be working with. The worker should also be told how their performance will be evaluated and whom they will report to.
- Overtime and Vacation Policies – The new employee should be made aware if they qualify for overtime and how many paid vacation days are accumulated per pay period and if vacation days increase over the term of their employment.
- Schedule and employment period – The contract must clearly explain if the employment is permanent, part-time, temporary, or a contract position, as well as what days and hours the employee is expected to work and what flexible working options are available, if any.
- Progressive Discipline Policy: Care must be used when deciding to suspend an employee. Unless the disciplinary process is expressly, or impliedly part of an employee’s employment contract, an employee who is suspended could claim to have been constructively dismissed, depending on the circumstances.
- Confidentiality – Confidential and sensitive information can be protected by having the employee sign a confidentiality agreement within the contract.
- Intellectual Property – Intellectual property created during the course of an employee’s employment does not equate to the employer’s automatic and exclusive ownership of any and all intellectual property. Employers who mistakenly assume that they automatically own intellectual property can pay an expensive price for failing to protect such intellectual property or effectively securing the rights from employees.
At HR Enable, we work alongside clients to help ensure their employment contracts meet all legal requirements and reduce potential liability for employers, with clear terms and conditions set out in the beginning of an employment relationship.