What is an employment contract?

Updated on February 16, 2024

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Employment contract definition and meaning

An employment contract is an agreement between an employer and an employee, outlining the terms and conditions of employment. While the contract may be written, verbal, or implied, it usually takes the form of a legally binding written document. Terms and conditions typically cover aspects like start date, duration of employment, compensation, benefits, and more.

More about employment contracts

Regardless of whether the employment contract is written, verbal, or implied, the information ultimately depends on what has been agreed upon between the employer and the employee. The contract can extend to various types of employment statuses, including full-time, part-time, temporary, seasonal, internship, and probationary periods.

 

It’s important to note that “employment” is the key word here, meaning there needs to be an employment relationship for an employment contract to exist. This does not include independent contractor agreements, as these workers are not considered employees.

Are all employment contracts the same?

The following are some different types of contracts that employers should be aware of.

 

At-will employment contracts

At-will employment allows both the employer and the employee the legal right to terminate the employment relationship at any time, for any lawful reason. Most states adhere to at-will employment, with Montana being a notable exception – here, at-will applies only during the initial six months of employment.

 

Many employers explicitly state the at-will employment status in their job offer letters. In these instances, the signed offer letter acts as a written employment contract for at-will employment along with other terms and conditions.

 

Written employment contracts

A written employment contract documents the terms and conditions of the employment agreement. As mentioned earlier, the offer letter can serve as a type of written contract for at-will employment, among other things. Another example is a collective bargaining agreement, a written contract arising from negotiations between union representatives and the employer of unionized workers.

 

Generally, it is advisable for agreements regarding terms and conditions of employment to be documented in writing.

 

Verbal employment contracts

A verbal employment contract occurs when the agreement between the employer and the employee is established orally rather than in writing. For instance, an employer and an employee might agree over the phone to change the employee’s status from full-time to part-time, along with adjustments to salary, benefits, and certain working conditions. Such an agreement, once made verbally, constitutes a verbal employment contract.

 

Though legally enforceable, verbal employment contracts are more challenging to prove in court than written contracts because they rely on one party’s word against the other’s.

 

Implied employment contracts

In an implied contract, the details of the employment agreement are inferred rather than expressly stated or written. Employees might prove the existence of an implied contract by referring to various statements or documented practices by the employer.

 

For instance, they might cite customary practices like annual Christmas bonuses or specific policies outlined in the employee handbook. According to Upcounsel, federal courts have recognized employee handbooks as a form of implied contract in some cases, although this interpretation can vary by state.

What goes into an employment contract?

The specifics of a written employment contract depend on the individual situation. Common content may include:

 

  • Hire date
  • Job title
  • Duties and responsibilities
  • Duration of employment
  • Wages or salary
  • Employee benefits
  • Work schedule
  • Confidentiality agreement
  • Non-compete clause
  • Relevant rules, policies, and procedures
  • Termination of employment
  • Employment limitations

 

The importance of written employment contracts

Written employment contracts are beneficial for both employees and employers for several reasons:

  • Legal protection: Written contracts are highly enforceable as they provide documented evidence of the employment agreement. In legal settings, they are typically easier to substantiate than verbal or implied agreements. They safeguard not only the employee’s workplace rights but also the employer’s assets.
  • Defines expectations: A written contract clearly describes the terms and conditions of the employment agreement. It may detail items such as employment start date, duties and responsibilities, compensation, benefits, and work schedule.
  • Increased accountability: A written contract strengthens the accountability of both the employee and the employer. For instance, an employer may be deterred from wrongful termination, or an employee may be more cautious about disclosing company secrets, if binding contracts are in place.

Using an employment contract in a sentence

“Because an employment contract can come in different forms, we asked our legal team to explain the various types, which may include offer letters, employee handbooks, union contracts, and executive contracts.”

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