What Is an Employment Contract?

Businessmen reviewing a contract
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What is an employment contract, and how does having an employment agreement impact your status as an employee? 

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, other types of agreements that cover employees in the workplace, and the pros and cons of contracts.

What is Included in an Employment Contract 

Also known as a contract of employment or employment agreement, an employment contract lays out the rights and responsibilities of both employer and employee. 

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 non-compete agreement (also known as an NCC). This is an agreement stating that, upon leaving the company, the employee will not enter into jobs that will put him or her 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 include:

  • An ownership agreement (stating that the employer owns any work-related materials produced by the employee).
  • Information on settling disputes at work.
  • Qualifications on where the employee can work after leaving the company (this is a way to limit competition between related companies).

Implied Employment Contracts

An implied employment contract is one that is inferred from comments made during an interview or job promotion, or from something said in a training manual or handbook.

For example:

  • Implied contracts can be inferred from actions, statements, or past employment history of the employer. 
  • An employee may have seen or recorded a history of promotions, raises, and annual reviews for themselves and their coworkers.
  • During an interview, a potential employee may be told that the employee's job is a long-term or permanent position in place, unless the employee is fired for a good reason. 

Enforcing an Implied Contract

While implied contracts are difficult to prove, they are binding. Employees can prove that an implied contract was established by pointing out actions, statements, policies, and practices of the company that led them to believe with reasonable cause that the promise would come to fruition.

Union Labor Agreements

Members of labor unions are covered by group employment contracts that stipulate wages, benefits, scheduling issues, and other working conditions for covered employees.

Union contracts will outline processes for addressing grievances if workers believe that elements of the contract have been violated.

Benefits and Drawbacks of Employment Contracts

A written contract is a great way to clearly define the job, your responsibilities, and your benefits. It prevents any confusion about your role at the company.

Most importantly, if you're not sure about any of the contract details, get advice from an attorney before you sign it.

Be sure to 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.

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.

The information contained in this article is not legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state's laws or the most recent changes to the law. 

Article Sources

  1. FindLaw. "Pros and Cons of Written Employee Contracts." Accessed Jan. 6, 2020.

  2. HG.org. "Implied Contract in Employment Law," Accessed Jan. 6, 2020.

  3. NLRB. "Employer/Union Rights and Obligations." Accessed Jan. 6, 2020.