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Formalizing an employment relationship in an employment contract can change how you view your employees and how they view you. Make sure you understand both the pros and cons of using a written employment contract before offering one. This article will review situations where a written agreement can be most beneficial and some basic terms to include when creating an employment contract.

Understanding Employment Contracts

In the United States, job security is generally governed by the at-will doctrine. In practice, this doctrine means that employment can end at any time. The decision to terminate employment can be made by the employee or the employer. Typically, under employment at-will, neither side will owe the other anything more than is required by law at termination.

An employment contract can change or modify the general expectations of at-will employment. You can tailor each legal contract to best suit the needs of both your business and the employment relationship you are memorializing.

Structure of an Employment Contract

Every written employment contract can be modified to fit your particular requirements. For example, some companies ask employees to sign a contract acknowledging that their employment is at-will. However, employment contracts can go much further than those boilerplate employment agreements. These terms will explicitly alter the at-will relationship by changing what is needed for either party to terminate employment.

Most employment contracts will include provisions addressing:

  • Duration - The term of employment covered by the agreement.
  • Duties - What the employee must do to collect their salary and benefits and avoid termination.
  • Benefits - What the employee will receive as compensation for carrying out their duties. This section might cover:
    • Salary and bonus structure
    • Medical and insurance benefits
    • Vacation and paid-time-off policies
    • Stock or equity ownership plans
  • Conflict Resolution - Consider requiring binding arbitration for any disputes between you and the employee.
  • Termination Procedures - What will happen if one party needs to breach the agreement? For instance, if a business opportunity never materializes or the employee suffers a debilitating illness these procedures can be implemented.

Formalizing an employment relationship in an employment contract can change how you view your employees and how they view you. Make sure you understand both the pros and cons of using a written employment contract before offering one. This article will review situations where a written agreement can be most beneficial and some basic terms to include when creating an employment contract.

Understanding Employment Contracts

In the United States, job security is generally governed by the at-will doctrine. In practice, this doctrine means that employment can end at any time. The decision to terminate employment can be made by the employee or the employer. Typically, under employment at-will, neither side will owe the other anything more than is required by law at termination.

An employment contract can change or modify the general expectations of at-will employment. You can tailor each legal contract to best suit the needs of both your business and the employment relationship you are memorializing.

Structure of an Employment Contract

Every written employment contract can be modified to fit your particular requirements. For example, some companies ask employees to sign a contract acknowledging that their employment is at-will. However, employment contracts can go much further than those boilerplate employment agreements. These terms will explicitly alter the at-will relationship by changing what is needed for either party to terminate employment.

Most employment contracts will include provisions addressing:

  • Duration - The term of employment covered by the agreement.
  • Duties - What the employee must do to collect their salary and benefits and avoid termination.
  • Benefits - What the employee will receive as compensation for carrying out their duties. This section might cover:
    • Salary and bonus structure
    • Medical and insurance benefits
    • Vacation and paid-time-off policies
    • Stock or equity ownership plans
  • Conflict Resolution - Consider requiring binding arbitration for any disputes between you and the employee.
  • Termination Procedures - What will happen if one party needs to breach the agreement? For instance, if a business opportunity never materializes or the employee suffers a debilitating illness these procedures can be implemented.