Importance of an Employment Contract

Importance of an Employment Contract

An employment contract is a term of the agreement between an employer and the employee about what the role of the employee is in an organization during a specific period of time whether on a long-term or short-term basis. This is usually drawn by the employer, human resources management, or whichever team is responsible for hiring new employees. Very often than not the employees can also draw a contract if their employers have none.


How does an employment contract work?

An employment contract can be written or implied. The written employment contract is usually the best because it carefully states the role of the employee, the time duration, benefits, and information of both parties and it is signed as an agreement between the employer and the employee. It can be presented at any time in case of any misunderstanding. While an implied contract is contracted and concluded based on communication between the employer and employee during the recruitment process or promotion. It has no legally binding agreement.


There are types of Employment contracts, which are listed below and explained:

Permanent employment contract: One thing to note about this contract is that it continues until either the employer or employee ends it, whether it’s a full-time job or part-time job. It is relevant to regular hours workers who are paid either salaries or an hourly rate.

Fixed terms contract: like its name says the duration for working is fixed. It is to be noted that a fixed-term employee has the same rights as a permanent employee, they cannot be offered less. The duration can also be extended based on an agreement with the employer, If this happens then the contract is not formally renewed, it is then an implied agreement between the employer and employee. The employer must also give an appropriate notice date to the employee.

Casual employment contract: this contract is a good strategy to make an employee committed especially when you can’t guarantee how many hours they will have to work a week and the frequency of the job. The contract has to state explicitly the minimum amount of hours they are expected to work a week and the possibility that the frequency and working hours could fluctuate.


Properties of an employment contract 

  1. Both parties: this includes the employer and employee, their identity, and information regarding both parties. This is important information in any contract.
  2. Job description:  This includes the role of the employee, the department the individual will be functioning in, the information of the supervisor if there is a need, and finally the criteria for evaluating the individual’s performance.
  3. Benefits and compensations: compensations include salaries, wages, and bonuses. Benefits include paid vacation, covered medical care, vehicle allowance, and stock options, e. t. c.
  4. Schedule of Employment: this contains the information as to the workings hours involved, the set term of employment if overtime is required, and at what instances.
  5. Employees classification: it states if the employee is a full-time or part-time employee and if the employee is allowed to be self-employed or allowed to work for other establishments or organizations.
  6. Confidentiality clauses: this is a very important aspect of the employee contract. The employee agrees not to disclose the information about the company or clients to competitors or outsiders. Another name for this is a non-disclosure statement or agreement.
  7. Non-compete clauses: this agreement states that for a certain period of time, an employee who no longer works for the establishment is not allowed to work for a direct rivalry of the establishment. Sometimes it can also include that the employee after they have left is not allowed to start a business in the same industry, but if this renders the employee permanently jobless then its enforcement may be hard.
  8. Work product: this part of the agreement concerns ownership of the product or ideas made while the employee is under contract with the company or organization. If the product was created during working hours and with resources from the company, the ownership usually goes to the employer except there was a different agreement on the production of such product.
  9. Technology privacy policy: this states what is allowed on social media and what is not allowed, social media being part of the daily lives of a significant number of the population in the world. Supervision even in the use of company digital tools can be stipulated too.
  10. Dismissal or termination: this clarifies on what grounds an employee’s job can be terminated. The actions of an employee can trigger dismissal from the establishment. This could be theft, disclosure of company secrets, all forms of harassment, violence, or even deception.

These and many more can be included in an employment contract as the organization or employee deems necessary.


Importance of employment contract:

  1. Job security: Because the contract states on what grounds an employee is to be terminated and the duration of the job, the employee has a guarantee that the job is intact until either termination as a result of a violation of the time of agreement elapses. It is beneficial to the employer too so the employee can’t leave at any time leaving the company stranded. Also when the employee violates the agreement, the individual’s job can be terminated.
  2. Understanding the job: the employee is aware of his day-to-day activities, tasks, and duties so that the individual is not dragged into other activities outside the job description by the employer. It also helps the employer have expectations of good performance from the employee and if the individual underperforms, the employer can discipline or terminate the employment of the individual.
  3. It protects employee rights: there is an Employment Act in every country. So as an employee, you must check to see if the contract covers these rights especially before signing the contract.
  4. Secures company secrets or confidentiality of the employee: this is important to keep company and client information safe. When this is breached the employer can take legal actions as much as suing the violator. This is important in cases where employees who leave, get a job in a competing establishment.
  5. Leave: sick leave, bereavement leave, holidays, and maternity leaves are covered in the employment contract, which makes it legal. It also covers the limited time for each leave and gives the employer the right to take action if the employee extends leave with due notice and approval from the employer.
  6. Dispute resolution: to reduce misunderstandings between the employer and employee, an employment contract is important. When issues arise, the employment contract can be referred to, to determine who is at fault and the best way to handle the issue without courtroom huddles.


Is there a general limit of time acceptable for an employee contract? 

Apart from the fixed-term contract which cannot exceed four years because after four years the person is now a permanent employee, the permanent employment contract and the temporary employment contract are determined by the labor union, the government, or the employers.


Can an employee extend the employment contract?

Yes and No. Days before the contract expires, the organization can hold a meeting with the employee to discuss if the company wants to extend or renew the contract. If the organization wants to extend the contract, the employer and employee renegotiate the contract, the old contract can also be retained with certain amendments, in extended agreements. A lawyer is usually required to be present in this case, usually because maintaining the old contract is rarely possible, because either the employer or employee may want to add a clause to the initial agreement. In cases of renewal, a new contract is drafted with a new resumption date and expiry date.

Career Advice, Employer Articles

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