Why Is It Important to Have Employment Contracts?

A good employment contract is beneficial to both the employee and the employer. It spells out the rights and obligations of each party, protects the job security of the employee and protects the employer from certain risks such as the release of confidential employer information after the term of employment ends. Some jurisdictions require employment contracts for certain positions.

Most employment contracts set a definite term of employment. This guarantees employees a job as long as they do not violate the terms of the contract, and allows employers to dismiss an employee at the end of the term in jurisdictions that restrict the ability of employers to fire employees. The length of this term should be carefully negotiated.

A good employment contract will specify exactly what offenses can result in termination of the employee. This helps both parties, because it ensures that the employee knows which activities are required and which are forbidden, thus rendering a serious breach less likely. The labor law of the particular jurisdiction should be consulted to ensure that the terms of the contract do not contradict legal requirements.

If the employee will have access to confidential company information, it is important from the employer's point of view to include a clause preventing the employee from divulging this information to others. An employer might also wish to prevent the employee from working for competitors, although the labor laws of various jurisdictions differ on the acceptability of such a clause. In both cases, noncompete clauses are typically binding on the employee for a certain period (perhaps two or three years) after the employment ends.

The duties of both the employer and the employee should be clearly spelled out in the employment contract. This section should include employee job duties, salary and benefits and any overtime incentives. The employer's right to transfer the employee to another position should also be included, although if this happens, the employment contract should be amended to reflect the employee's new job duties.

A good employment contract will specify dispute resolution procedures that minimize the time and expense of a courtroom battle that neither party can afford. Arbitration procedures often reduce time and expense, although appeals from arbitration decisions are typically difficult. Some jurisdictions require that employment disputes be brought to a special employment dispute resolution tribunal, in which case, no dispute resolution clause is necessary.