An employment contract is a signed agreement between an individual employee and an employer or a labor union. It establishes both the rights and responsibilities of the two parties: the worker and the company.
Review information on what to expect when you’re asked to sign a contract, types of agreements that cover employees in the workplace, and the pros and cons of employment contracts.
What Is an Employment Contract?
An employment contract is an agreement that covers the working relationship of a company and an employee.1 It allows both parties to clearly understand their obligations and the terms of employment.
More specifically, an employment contract can include:
- Salary or wages: Contracts will itemize the salary, wage, or commission that has been agreed upon.
- Schedule: In some cases, an employment contract will include the days and hours an employee is expected to work.
- Duration of employment: An employment contract will specify the length of time the employee agrees to work for the company. In some cases, this might be an ongoing period of time. In other cases, it might be an agreement set for a specific duration. At other times a minimum duration is laid out, with the possibility of extending that period.
- General responsibilities: Contracts can list the various duties and tasks a worker will be expected to fulfill while employed.
- Confidentiality: Although you may have to sign a separate non-disclosure agreement, some contracts include a statement about confidentiality.
- Communications: If an employee’s role involves handling social media, websites, or email, a contract might state that the company retains ownership and control of all communications.
- Benefits: A contract should lay out all promised benefits, including (but not limited to): health insurance, 401k, vacation time, and any other perks that are part of the employment.
- Future competition: Sometimes, a contract will include a noncompete agreement or noncompete clause (NCC). This is an agreement stating that, upon leaving the company, the employee will not enter into jobs that will put them in competition with the company. Often, an employee will have to sign a separate NCC, but it might also be included in the employment contract.
Other possible terms of the agreement could include an ownership agreement (which states that the employer owns any work-related materials produced by the employee) as well as information on settling disputes at work. The contract may even qualify where the employee can work after leaving the company, as a way to limit competition between related companies.
- Alternate names: Contract of employment, employment agreement
How Does an Employment Contract Work?
You may encounter different kinds of agreements depending on the job and the company.
Written Employment Contracts
A written contract is a great way to clearly define the role, the responsibilities, and the benefits and to prevent any confusion.
Carefully read all elements of an employment contract before signing it. Make sure that you are comfortable with every part of the agreement. If you break the contract, there might be legal consequences.
If you’re uncertain about any of the contract details, get advice from an attorney before you sign it so you don’t bind yourself to an unfavorable agreement.
It’s important to make sure you are able to uphold every part of the written agreement. For example, if the contract requires you to stay at the job for a minimum period of time, make sure you will be able to comply with the requirement.
Also, if the contract places limits on where you can work upon leaving the company, consider whether or not you are comfortable with this limitation.