What Is an Employment Contract?

Businessmen reviewing a contract

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

What Is an Employment Contract?

An employment contract is an agreement that covers the working relationship between a company and an employee. It allows both parties to clearly understand their obligations and the terms of employment.

More specifically, an employment contract can include:

Other possible terms of the agreement could include an ownership agreement (which states that the employer owns any work-related materials produced by the employee) as well as information on settling disputes at work. The contract may even qualify where the employee can work after leaving the company, as a way to limit competition between related companies.

Types of Employment Contracts

You may encounter different kinds of agreements depending on the job and the company.

Written Employment Contracts

A written contract is a great way to clearly define the role, the responsibilities, and the benefits and to prevent any confusion.

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.

Note

If you're uncertain about any of the contract details, get advice from an attorney before you sign it so you don't bind yourself to an unfavorable agreement.

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.

Implied Employment Contract

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.

While implied contracts are difficult to prove, they are binding.

Note

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.

Pros and Cons of an Employment Contract

Pros Explained

Cons Explained

Key Takeaways