While hiring any employee or contractor, whether for partime or full-time, an employment contract is required.
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How Does Employment Agreement Work?
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What is an employment contract?
An employment agreement is a legal document that is signed between an employee and an employer/company/partnership/labor union or firm. Such an employment contract ensures that the best interests of both parties are protected. Furthermore, it also establishes the rights, responsibilities, and duties of both the people involved in the agreement. As per the law, employment agreements may be either oral or written and can be either specific or more general in structure. Employment contracts also help in negating at-will employment, making it a handy tool when it comes to inducing and recruiting new employees.
Essentials of an employment contract
An employment contract or employment agreement contains all the terms, guidelines, rights, and responsibilities that both the employer and employee have. The significant elements or essentials that an employment contract must contain are as follows:
- Salary: The contract must include information regarding salary, wages, payment methods, and also when the payments shall be made. Furthermore, it must also clearly state whether the employee will receive any further benefits or allowances. It should make it explicitly clear how the employee will be paid, and by when.
- Schedule: Most employment contracts will have a clause regarding how long the deal will stay in place. Such a section will focus on how many hours the employment agreement will be valid for, and what projects the employee will handle. While specific contracts explain how many hours of work are required, others focus on the number of projects to be completed.
- Duration: Such a clause specifies the length of employment for which the employee will work for the employer. For specific employment agreements, this may become an ongoing period, whereas, for others, it is a particular duration. In some cases, the minimum duration is specified, and it is stated that there is a possibility of extension.
- Responsibilities: Employment contracts must list out all the various duties, tasks, and responsibilities that the employee is expected to fulfill. These also serve as basic guidelines for the employee, which makes it easier for the employee to know what the employer expects of them. Furthermore, such a clause also makes it easy to divide labor and specify tasks and duties to people.
- Confidentiality: While individual companies make it compulsory for employees to sign a separate non-disclosure agreement, most employment contracts include a clause on confidentiality. Such provisions are ubiquitous in industries such as governmental agencies, defense, medical care, and scientific research. While working for a company, employees might have access to a lot of sensitive data that the company needs to protect. In such cases, the employee must handle the data with care to prevent it from being compromised. Since the data has a lot of sensitive information, which if made public can be detrimental to the company, such a clause is added to the contract. In general confidential data includes information regarding clients, strategies, marketing plans, profit and loss analysis, and product specifications.
- Communications: In some instances, when an employer employs a social media consultant or influencer, they will have to communicate with the general public for the company. A communications or Intellectual Rights clause is added to ensure that all such communication belongs to the company itself. Such terms primarily clarify ownership of intellectual property rights and data. Furthermore, it also makes it clear how the company wishes to handle communication within and external to their organization.
- Benefits: Certain employment contracts have a separate clause that lists out all the promised benefits that the employee has been offered. This usually includes health insurance, vacation time, travel allowance, and any other such perks that come as a part of the employment.
What are Implied Employment Contracts?
Implied employment contracts are ones that might not be in writing, but rather have been inferred from statements made during job interviews. Furthermore, they may also be deducted from accounts in training manuals and handbooks. For instance, such contracts are concluded from anything ranging from statements to the past employment history of the employer. This also includes the history of raises, promotions, reviews, and bonuses handed out in the past to other employers. Also, it can come as a result of statements made regarding long-term employment opportunities during an interview.
How to Enforce an Implied Contract?
Benefits of Employment Contracts
- Makes it clear what the employer is expecting out of the employee
- Prevents misunderstandings
- In case a dispute arises, the contract gives some clarity regarding responsibilities and promises made by both sides
- A legally binding document that acts as proof of the employment deal between two parties
- Prevents confusion later on in the relationship
- Saves time and money, which may be lost arguing and filing cases later on
- Stops companies from having to face lawsuits
What to do before signing an Employment Agreement
- Make sure you always get a lawyer to read through the employment contract before signing it to prevent miscommunication later on. Ask them to explain anything you don’t understand fully so that you know exactly what you are getting yourself into. Furthermore, an experienced lawyer will be able to point out tricky statements and clauses that might land you into trouble later on.
- Read every clause and element of an employment agreement before signing it. Remember to ensure that you are comfortable with all the guidelines and rules stated. Since breaking any of those rules can lead to legal consequences, make sure you understand everything correctly.
- Ensure that you can uphold every part of the agreement. For instance, if a particular employment contract requires you to work with a company for two years, make sure you have nothing else lined for those two years. Also, individual companies will place restrictions on taking up offers after the contract draws to a close. Make sure you are comfortable with those terms and conditions before signing the contract.
Structure of an Employment Agreement
- Terms of employment
- Employee Responsibilities and Duties
- Employee Benefits
- Employment Absence
- Dispute resolution or Grievance Address
- Nondisclosure agreements or Confidentiality Clauses
- Ownership agreements or Intellectual Property Rights
- Assignment clauses
- Employment opportunity limitations
- Grounds for termination
Employment Contract Types
Union Labor Agreements
These employment agreements are signed between labor unions and companies. The members of the labor unions, therefore, receive coverage through these group employment contracts which contain details regarding wages, duration, and other rules and responsibilities. Union contracts will also contain clauses regarding grievance redressal in case, any element of the contract is violated.
Permanent employment contracts
These apply to employees who are a part of the organization and work regular shifts or hours daily. Such contracts are mainly for individuals who are paid wages or hourly salaries by the company on a long-term basis. Furthermore, most such agreements are ongoing, until the company terminates the employee due to some reason, and may come into use for both full-time and part-time jobs. Such employees will receive all statutory employment rights.
Such employment agreements have fixed start and end dates, such as six months or two years. These contracts are useful when you are trying to cover maternity leave vacancies, hire staff for a new big project, or get interns. Most fixed-term employees enjoy all the rights that permanent employees do, as companies cannot offer them fewer benefits. While they may be extended as and when required, if such a contract extends four years, then the employees become permanent employees.
Casual employment contracts
These are suitable in scenarios wherein a company requires someone to work dedicatedly for them, but the company does not know for how long. Since they cannot be sure of how much work will come in every week, there is no regular work schedule in such cases. Therefore, casual employment contracts specify only the minimum number of hours expected from employees. Most such employees are entitled to benefits such as sick leave and other employment rights.
FAQs on Employment Agreement
In case you are the current staff of the organization and are offered a new employment contract, your employer cannot force you to sign it. New agreements may contain new conditions or clauses, which you can choose to agree with. In case you are a permanent employee, no one can force you to sign a new contract. Not doing so will also not result in your termination. Variations made to a deal must be agreed on by both parties, and hence you have the right to choose whether to sign it or not.
In case you are being approached by a company for the first time, they still cannot force you to sign the document. However, many companies make it compulsory to sign such an agreement to make sure that both parties understand what is expected of them. In such cases, refusing to sign the agreement may result in your offer being called back. Companies have the right to dismiss your proposal if you refuse to sign the contract initially. However, under no circumstance can an employer force you to sign a contract against your will. Employers are also prohibited under the law from using unfair tactics to get you to sign the contract.
- Impossibility of Performance -In case you fail to do or perform your duties as expected of you in the contract. For instance, if your employment agreement contractor requires you to organize a public talk at your company, and you refuse to host such an event, it is a failure or impossibility of your performance, and this can lead to the termination of your agreement.
- Breach of Contract -In case you fail to honor the agreement intentionally, then it is referred to as a breach of contract, and that gives the other party the right to terminate your contract. For instance, in case you bought a product online, and it failed to reach you on the date of arrival agreed on by both parties, which resulted in a loss for you, then it is a breach of contract.
- Termination By Prior Agreement -In case both parties have a written agreement that allows contract termination for a specific reason via a break clause. Such a term must provide details regarding what qualifies as a sound reason for termination of the contract. It must also state the actions to be followed while implementing the termination.
- Rescission -In such cases, termination occurs because one party misrepresented themselves, took part in illegal activities, or made a fatal mistake. For example, if you find that the house you bought had issues that the seller hid from you on purpose, you can rescind the contract.
- Completion -Contracts are also terminated once all the duties outlined in it are completed by the parties involved.
An independent contractor agreement must include the following sections.
- General Terms and Conditions
- Nature of Work
- Independent Contractor Status
- Taxation Norms
- Eligibility for Benefits
- Termination of the Contract
- Restrictive Covenants including non-solicitation and non-competition clauses
- Litigation or Arbitration
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