An employment contract is a written legal document that lays out binding terms and conditions of an employment relationship between an employee and an employer. Differences exist in private and public sector employment contracts because the goals of an employment contract are different in each sector.
Private Sector Contracts for Senior Positions
An employment contract is written most frequently in the private sector for higher-level jobs and for senior employees who have a lot to lose if an employment relationship does not work out as planned.
If the employee is leaving a current employer to accept your position, they will rightfully try to protect their interests. Employment relationships do not always work out despite arduous selection processes and the positive wishes of both parties in the employment relationship.
Many factors play a role in whether the senior employee is successful. These factors include the marketplace, the employer's other employees, the employer's past practices, and commitment or not to the agenda the senior employee is hired to accomplish.
Employment Contracts and Leaving Senior Positions
So, anyone who leaves a senior role to take on a new role in an unknown territory should protect their best interests with an employment contract.
Contracts recognize the fact that the more senior the position, the more time and difficulty the employee will have to replace their employment. So, the agreements often contain severance packages and other clauses that protect the employee’s wellbeing.
They are generally negotiated and reviewed by an employment law attorney. Both the employee and employer will usually have the contract reviewed by legal counsel. Negotiations can be intense as both sides make an effort to protect their interests.
Job Offer Letters as Employment Contracts
A job offer letter is an informal employment contract used in private sector employment. The job offer letter usually spells out just the basics of compensation and benefits, paid time off, job title, and reporting relationships.
Employers who use a job offer letter with senior employees may need to offer the employee an offer letter that spells out many of the same components you would find in a formal employment contract. Many senior employees prefer an attorney negotiated an employment contract that spells out all agreements in detail.
Depending on the position the employment contract or job offer letter defines, the employee may be required to sign a non-disclosure agreement or a non-compete agreement to get hired. These are usually non-negotiable signed documents.
Union Represented Workplaces
An employment contract is also negotiated for union-represented employees. Unions strive to create workplaces where employees at the same level of seniority, with the same number of years in service, employed in the same job receive the same pay. However, some employers are striving to change this picture to create merit-based pay systems even in workplaces that are covered by a union contract. The struggle is an uphill climb.
Teachers’ unions and public-sector unions that represent groups such as Federal, university, and state employees are difficult to change even when the union leadership agrees with the merit pay—in theory. Private-sector unionized workplaces, common in such sectors as manufacturing, struggle with the same uphill climb in their employment contracts.
A union employment contract also covers employment issues that an employment contract in the private sector may not describe. These union-specific issues include workplace conditions such as grievance procedures, hours of employment, representation by a union steward, and layoff procedures.
What's Covered in an Employment Contract
Every employment contract is different. In a non-union setting, their level of detail depends on the persistence of the employee and employer who are negotiating the details of the contract.
In any contract negotiation, legal representation is recommended. If you're an employee, your job is your livelihood. This livelihood is one area in which you don't want to take any chances or get the details wrong.
As an employer, you also have the option of negotiating with the prospective employee if your first offer is not accepted or your prospective employee makes a counteroffer.
An employment contract generally covers:
- an overview of job responsibilities
- reporting relationships
- paid holidays
- paid vacation
- paid sick leave,
- paid time off (PTO)
- sales commissions
- bonus pay potential and how a bonus is determined
- profit sharing and how profit sharing is determined
- stock options and stock buy-back provisions
- employment contract signing bonus
- phone allowance
- company car
- car mileage and travel allowance
- moving and transition expenses
- any additional negotiated perks
- details of employment termination including potential causes, the severance package, and the termination notice.