What Is an Employment Contract? Know Its Meaning and Types

Hiring new employees and proceeding with all the required actions is crucial for a company. It’s one of the essential tasks that must be done properly.

A recruitment process of adding a new employee to your team is never limited to hiring an employee and giving an offer letter. A set of agreeable terms and conditions are also crucial to keep the employee and employer relationship healthy. Therefore, companies must opt for an employment contract.

The next move here will guide you on its meaning, importance, types, and the best time to adopt it.

What Does Contract of Employment Means?

An employment contract is an agreement that employer and employee both sign. This covers the details of job titles, descriptions, employment duration, and other benefits that the company offers to the candidate. This official document establishes transparent communication between both parties. Also, it acts as a supportive document for both.

For Whom Employment Contract Works?

The need for an employment contract is majorly for employers, recruitment officers, and human resources. This contract is issued at the time of new hiring or changing the title and position of the current employee. Employment contracts act as a legal protection document.

Further, it becomes more important to adopt an employment contract when the employer side attorney and employee side attorney review the contract. Also, unions represent employees for both public and private sector unions.

Why Is an Employment Contract Crucial?

As mentioned above, an employment contract is a kind of agreement document. It covers all the essential details to establish a clear understanding. Furthermore, it offers the following benefits:

Job Profile

It is essential to include the job title you offer to employees in the contract. This gives awareness to employees.

Job Description

With a proper employment contract, employees get a proper understanding of their job description. The written document clarifies the complete roles and responsibilities that candidates need to perform during employment tenure.

Better Job Security

A properly written and signed employment contract acts as an authorized document. This enhances the job security sense in employees and trust in the company.

Protecting Company Information

Employee contracts commonly include terms like non-compete clauses, non-solicitation agreements, and confidentiality provisions. It binds employees to certain limitations and prevents them from exploring certain confidential information of a company.

At What Condition Should You Ask for an Employment Contract?

You must ask for an employment contract in the following situations.

Employee is Highly Experienced

When an employee is highly experienced, it is difficult to replace them with other employees. It is because it affects the overall performance of a company.

To Protect Confidential Information

Your employees may be well aware of the confidential information of a company. Due to this reason, you must adopt a legal employment contract process.

Working for Competitors

No company would like to see its employees working for competitors. In this case, employers can bind employees to legal employment contracts.

How to Write a Contract of Employment?

Employment contracts cover all details to support employee and employment relations. To create a perfect contract, you can use employee management software. The employment contract covers the following details:

Job Description

Mention all the roles and responsibilities of the candidate in the employment contract. This helps the candidate to have a clear idea of the role before setting up the job.

Wage/Salary

The employment contract should give proper detail on employee’s pay. Also, you must include the frequency of when payment will be made. Whether it is a high salary or a low wage, the company must include all the details.

Employment Duration

Employers should mention the employee’s date of joining along with the time on the contract. Along with it, the type of employment is also good to mention. For example, if you hire an employee for a remote job then you should mention proper details related to it. Details of the probationary period should also be mentioned in the contract.

Grounds for Early Termination

Still, if a contract includes a fixed term of employment, there should be a discussion of the effect and result of capital terms due to early employee termination. In this case, five types of termination include multiple protocols.

1. Termination Without Cause

In some circumstances, employers can terminate employment that does not come under the “for cause” section. This is considered termination without cause.

2. Termination ”For Cause”

Employers can mention some conditions when they terminate their employment. These conditions are always a result of some action performed by the employee’s side.

3. Resignation

Employees usually receive their salary on the last working day when they resign from the job. Bonuses and commissions are also applicable under such conditions.

4. “Good Reason” Resignation

Valid reasons for termination include the employer’s inability to pay an employee’s compensation or changes in the corporate structure. Employers need to provide some type of compensation to the employee in this kind of resignation.

5. Death and Disability

If an employee dies, the company should prepare proper employment terms and conditions. The company should mention the condition of compensation given in the case of death or any kind of disability.

Resolving a Dispute

The contract will explain how the two parties can agree on certain things, in case any contract dispute occurs. This also explains the arbitration process. Thus, it is very helpful in dispute resolution.

Confidentiality

Contracts will include a written note on protecting the confidentiality of a company. They contain a proper explanation of what can be or what can’t be and how to deal with confidential information and other intellectual property.

Benefits

The employment contract will include all the merits that a company gives to employees. It includes vacations, holidays, and other health insurance plans. Including employee benefits impacts positively on an employee.

Relationship Between Parties

Employee and employer relations concepts can be of three kinds.

1. Binding Authority: Without written consent, an employee cannot bind his employer to a contract or commitment.
2. At-will Employment: At any time, without notice, and for any reason, an employee or employer can terminate the employment relationship.
3. No Exclusively: The terms of the employment agreement which is made in the contract are not exclusive. Both employers and employees are free to agree on an agreement which is similar.

Further, you can craft a professional employment contract by choosing the best employment contract template.

The predefined samples can simplify your employee contract-making process by offering ready-to-use templates. As a user, you need to fill in the details, review them and it’s ready to use.

Different Types of Employment Contracts

In general, 4 types of employment contracts are available which are as follows.

1. Written Employment Contracts
2. At-Will Employment Contracts
3. Implied Oral Contracts
4. Oral Employment Contracts

Written Employment Contract

This type of employment contract covers more details. It also covers specific employee and employer obligations. Additionally, it contains terms of employee’s termination. Generally, this kind of contract is more authorized and contains the signatures of the employer and employee.

At-Will Employment Contracts

In the USA, this is one of the most usual types of contract. It simply states that employees can be fired or quit at any time with no notice. However, for the protected classes, retaliation or discrimination, employers cannot fire employees.

Implied Oral Contracts

There is no formal documentation in such types of contracts. These are combinations of both written and oral statements. Courts can also consider employee performance within the company.

Oral Employment Contracts

As opposed to a written contract, these kinds of contracts are difficult to prove. Due to the lack of evidence, it sometimes creates problems. These kinds of contracts are either based on some terms or can either be at will.

Conclusion

Here, we terminate our blog journey. Employment contracts are crucial for companies to manage things smoothly. Moreover, it sets up transparent communication between a company and an employee. Make sure your contract covers all prime information. Overall, keep the content that is beneficial for either party.

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