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How to Write an Employment Contract Correctly: Tips for Businesses

updated:
12.8.21
How to Write an Employment Contract Correctly

Your startup is just getting off the ground, business is starting to grow, and the work volume is getting too much for you to handle alone. Meanwhile, you have found the perfect candidate to help take you to the next level. Congratulations! So now all you need is a simple agreement and a handshake, right?

Well, no. You will need a well-drafted employment contract because the risks of hiring without one are simply unacceptable. Does an employment contract need to be in writing? Absolutely yes.

What Is an Employment Contract?

Ultimately, an employment contract defines the employment relationship, and it protects the rights of both the employer and the employee. The risks of proceedings without a formal agreement are especially acute if the employee you are considering hiring will have access to company trade secrets or will otherwise be in a position to harm your company in the event of a dispute.

It is difficult, if not impossible, however, to anticipate every possible issue that might arise in the context of an employment relationship. For this reason, it is not enough to simply have an employee sign an agreement. The worst thing you can do is to use a pre-fabricated “employment contract” template blindly. You also need to purchase a comprehensive business liability insurance policy, and you need to keep updating the employment contract as the need arises.

What Is an Employment Contract

Benefits of Employment Contracts

Creating an employment contract between you and your employee offers both of you several advantages, including the following:

  • It reduces the likelihood of litigation between you and your employee by clearly spelling out your rights and obligations to reduce the kind of ambiguities that typically lead to disputes.
  • It tells your employee exactly what is expected of them, as well as the consequences if they fail to meet these expectations.
  • An employment contract can be written in a manner that limits your employees’ overtime and holiday pay (to the extent permitted by law). This can save your company money.
  • You can add a confidentiality clause that prevents your employee from disclosing your company’s proprietary information.

These are only a few of the possible advantages offered by a well-written employment contract.

What Terms and Conditions Must Be Included in an Employment Contract?

The essential elements of an employment contract include:

  • Name and address of employer and employee;
  • Starting and ending dates;
  • Job duties;
  • Hours of work;
  • Pay;
  • Holiday and overtime entitlement
  • Sick leave;
  • Proprietary intellectual property rights assignment;
  • Reasons for termination;
  • Non-solicitation/non-compete;
  • Confidentiality; and
  • Signature page.

The foregoing is only a bare-bones description. A good employment contract will contain much more.

Basic Information About the Job

The four elements of an employment contract that are absolutely indispensable are the job title, the department where the employee will work, identifying who the employee will report to, and a description of how performance evaluations will be conducted.

Base and Variable Compensation and Benefits

Among the minimum requirements for an employment contract is a description of compensation and benefits. You need to describe salary or hourly wage (depending on how the employee is to be paid), including raises, bonuses and benefits, and how the employee qualifies for these benefits. You also need to describe all non-monetary benefits such as health insurance, retirement benefits, etc. as well as which portion of these expenses the employee must pay.

Information on Time Off, Sick Days and Vacations

Time off policy is one of the critical parts of an employment contract. The contract should describe in detail the accrual of vacation days, any increase in vacation days due to seniority, sick leave, family emergencies, and unpaid leave. Can the employee make up for lost work time by working overtime?

Employment Contract Benefits

Employee Classification

One of the most essential elements of a contract of employment is the way that you classify employees. You must make it clear that you are hiring an employee, not an independent contractor. It is important to recognize, however, that it is the content of the company’s rights and obligations that determine this classification, not what label you use.

Schedule and Period of Employment

One of the key features of an employment contract is a clause stating whether the employee’s term of employment is indefinite or for a set term.  It should specify the number of hours the employee is expected to work and whether remote or out-of-town work is possible or expected. If night or weekend work is expected, the contract should specify this.

Confidentiality Agreement

In most cases, a confidentiality agreement is one of the key requirements for a valid employment contract. Place a confidentiality agreement within the text of the overall employment contract and include a way for the employee to sign it digitally. It is important that the employee provide a separate signature to this clause if confidentiality is a critical concern for your business.

Privacy Policy

Is it OK for your employees to update their social media accounts using company-supplied devices, even on their lunch breaks? If not, state this clearly. May employees speak critically of the company on their own time, using their own devices? Again, if not, make sure to say so within the employment contract.

Termination Conditions

Under what conditions may the employer terminate the employee? Should the employee provide notice before quitting? Should notice be in writing?

Severance Pay and Outplacement Plans

Will the employer provide the employee with severance pay in the event of termination? Will it provide outplacement assistance?

Claims After Termination

Are you placing any restrictions or mandates on the employee after you part ways? For example, do you intend to forbid the employee from working in the same industry for a period following termination to protect your company’s trade secrets? If so, state these restrictions clearly. Remember, however, that legal limits exist on your ability to do this.

Need an Employment Contract Lawyer?

An employment contract is a binding legal document. Disputes can arise over interpretation, and you are likely to need an attorney to help you enforce its terms in the event of a dispute. The best use of an employment contract lawyer, however, is to have the lawyer compose the employment contract in the first place, or review its terms before signing it, to prevent disputes before they arise.

Get a Free Consultation

If you have concerns about your employment contract, either before or after a dispute has broken out, contact the employment law attorneys at Sequoia Legal for a free consultation by calling 303-993-0932 or contacting us online.

Written by:

Hunter Boone

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