Employment contracts, also known as contracts of employment, contracts of employment, contracts of employment, and contracts of employment, are written legal documents that explain the binding terms and conditions between an employee contract and his employer.  

Employment contracts, also known as contracts of employment, contracts of employment, contracts of employment, and contracts of employment, are written legal documents that explain the binding terms and conditions between an employee and his employer. This document sets out the rights, duties and obligations of both parties. It includes both W-2 and 1099 contract employees and is typically used when hiring high-level managers, freelancers, and short-term contract employees.

Sometimes these are formal written documents signed by both parties. More often, employment agreements are implied by verbal statements or actions, through employee handbooks or policies adopted while the employee works for the employer. In some states, a binding employment contract is simply to say, "You will be here as long as you sell above budget."

Employment contracts are most often used to demonstrate limitations on an employer's right to fire an employee.

What is included in the employment contract?

The employment contract will differ depending on whether the employee works in the public or private sector. It usually includes:

• Length of employment

• Duties of the employee

• Benefits like 401K or health insurance

• Sickness and vacation policies

• Reasons for termination

• Non-compete agreements

• Nondisclosure Agreements

• Property contracts

• Assignment clauses (patents claimed by an employee during his employment belong to the company)

• Methods of dispute resolution

• commission

• Bonuses

• Share of profits

• Warehouse options

The contract also clarifies whether the employee will be paid as a W-2 or as a 1099.

What an employment contract must not contain

While the contract may include a term of employment, this is not recommended as it may minimise your right to terminate the employee's employment even in a voluntary state. Once you insert a time frame into the contract, you create an implied contract. You will be forced to pay the employee for the duration, even if it is terminated.

You may not want to include reasons for termination as well. This can minimise your rights even in a state where employment is at will. If you are sued for wrongful dismissal, the court may interpret this to mean that the employee can only be dismissed for reasons such as behavioural issues.

Benefits and Compensation

The remuneration of the employee should be part of the employment contract. This will determine what their pay is and whether it is weekly, fortnightly or monthly. The dollar amount of the bonuses and the conditions under which they are earned should also be stated. Any health insurance benefits should be included. Paid time off should also be listed, whether it is sick leave, vacation or the death of a family member. Any other benefits, such as life insurance or a 401K, should also be listed.

Benefits of employment contracts

One of the main advantages of employee contracts is the ability to retain your best employees. For example, you may want to limit the reasons they can leave the company.

Another advantage is the ability to require your employee to keep your trade secret quiet. This would be subject to a non-disclosure agreement as well as a non-competition agreement.

An employee contract can give you more control over how your employees perform their jobs. If you specify specific standards, it may be easier for you to reprimand or fire an employee who does not meet those standards.

Disadvantages of employment contracts

A good employee can be highly sought after by companies offering a range of employee contracts, so you need to offer the best deal. Remember that you are also covered by the employment contract — you have certain obligations. If an employee does not work or your business needs change, you may need to renegotiate the contract.

Another downside is that once you sign the contract, you are bound by a "covenant of good faith and fair dealing." This means you must act in good faith and treat the employee fairly. If you breach this agreement, you have not only breached the contract, you have also acted in bad faith and breached your legal obligations, which may have further legal consequences.

Offer letters versus employment contracts

A job offer letter is an informal employment contract used in the private sector. This usually includes only the bare basics:

• Advantages

• Compensation

• Paid time off

• Title

• Reporting on relationships

Depending on the position, the employee may be required to sign non-disclosure and non-competition agreements, which are usually unsigned, non-negotiable documents.

Offer letters are extended to potential employees, while employment contracts are extended to existing employees. An offer letter is not as detailed as an employment contract and is not legally binding.