Employment Contract: Definition and Overview
An employment contract is a formal agreement that sets out the expectations, responsibilities, and obligations between an employer and an employee. While such agreements can be verbal, implied, or in writing, they are most commonly structured as written documents that are legally enforceable. These contracts typically outline essential employment terms, including compensation, job duties, start date, benefits, and duration of employment.
Understanding Employment Contracts
The specifics of any employment agreement, whether oral, written, or assumed, are determined by what the employer and employee mutually agree upon. These contracts may apply to a range of job types, including full-time, part-time, temporary, seasonal, interns, or those in a probationary period.
Importantly, employment contracts apply only in situations where there is an employee-employer relationship. Independent contractors are not covered under employment contracts, as they are not classified as employees.
Types of Employment Contracts
- At-Will Agreements
At-will employment means that either the employer or the employee can end the working relationship at any time for a lawful reason. This arrangement is the standard in most U.S. states, with Montana being an exception—where at-will employment only applies during the first six months.
Often, the job offer letter itself can function as a written acknowledgment of at-will status and include relevant employment terms. - Written Employment Contracts
A written contract clearly outlines the conditions of employment and can range from a basic offer letter to a formal agreement or union-negotiated contract. One example is a collective bargaining agreement, which outlines terms negotiated between labor representatives and the employer.
Using a tool like Beyond, employers can streamline documentation, ensuring that agreements are accurately recorded and securely stored. - Verbal Agreements
In a verbal contract, employment terms are agreed upon through spoken communication. For example, a manager might call an employee to confirm a change from full-time to part-time status, along with updates to pay and benefits. These contracts are enforceable, but proving their existence in court can be difficult due to the lack of written records. - Implied Contracts
Implied contracts arise from actions, policies, or statements made by the employer, even if there is no written or spoken agreement. For instance, repeated practices such as annual bonuses or assurances found in an employee handbook may constitute an implied agreement. Federal courts have occasionally recognized employee handbooks as implied contracts, though interpretation can vary based on state law.
What’s Typically Included in a Written Employment Contract?
Each employment agreement may vary, but commonly included elements are:
- Start date
- Job title and description
- Responsibilities and expectations
- Duration of employment
- Pay rate or salary
- Benefits (healthcare, retirement, PTO, etc.)
- Work hours and schedule
- Confidentiality agreements
- Non-compete clauses
- Company policies and guidelines
- Conditions for termination
- Any employment restrictions or limitations
Why Written Contracts Are Beneficial
Having employment terms in writing is beneficial for both parties. Some key advantages include:
- Legal Safeguards: Written agreements serve as concrete proof of the terms agreed upon. They can protect both employee rights and employer interests in the event of disputes.
- Clear Expectations: With a formal contract in place, there’s no ambiguity regarding roles, responsibilities, compensation, or work conditions.
- Accountability: Contracts increase mutual accountability. Employees are more likely to respect company rules, and employers are more likely to avoid unjust dismissal or breaches of agreement.
Platforms like Beyond can assist employers in managing contract documentation, automating HR compliance, and ensuring both employer and employee are aligned on the terms of employment from day one.