Employment Contract FAQ - United States

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An Employment Contract is a contract - either written or verbal - which sets out the terms and conditions for employment between an employee and an employer. LawDepot provides a written Employment Contract.

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Contents

Who are the parties to an Employment Contract?

The employer is the party which is hiring and paying individuals or organizations to perform work on the employer’s behalf. Employers are responsible for controlling and directing the work performed. The employee is the individual or organization who has been hired and paid to work on the employer’s behalf.

Why won't an oral Employment Contract be sufficient for me?

The problem with oral agreements is that they are difficult to prove. If a dispute arose, a court would have to hear evidence and decide whose version of the truth to accept. If there is a written agreement, courts will generally be obligated to uphold its terms even if they don't agree with them.

What is addressed in an Employment Contract?

Employment Contracts typically address the following:

  • the job position being offered and accepted;
  • the term of employment;
  • details of holiday, sickness, and grievance policies;
  • the compensation that will be provided to the employee; and
  • the responsibilities of the employee and employer.

In addition, Employment Contracts may also provide specifics on:

  • whether the employee will have a probation period;
  • how confidential information is to be treated upon the employee's termination; and
  • whether there are limitations on the employee's ability to compete with the employer's business upon the employee's termination.

What are the duties of the employee?

The duties of the employee refer to the tasks that will be performed or the functions and responsibilities of the job position. Ensure that your description of the employee's duties is clear. You should review your description and make sure that it is grammatically correct within the context of the document.

What is the difference between an Employment Contract and a Service Agreement?

Service Agreements are used to hire service providers or independent contractors, not employees. A Service Agreement is limited to a specific project or time period. Employment Contracts are used to hire employees.

What is the difference between an employee and independent contractor?

Generally, employees are viewed as workers who are "employed" whereas independent contractors are viewed as workers who are "self-employed." The law treats employees and independent contractors differently. Employees are usually entitled to certain rights by their employers while independent contractors, being self-employed, are not guaranteed such rights by the people they work for. It is not always easy to establish which category an individual falls into. In cases of dispute, courts will determine the appropriate category by examining a number of factors. Some factors will be considered more important than others. Examples of relevant factors are:

  • who is providing the tools for the job;
  • the level of skill required for the job;
  • who controls the work and the work product;
  • whether the hired party must provide oral/written progress reports;
  • whether the job is performed on the business premises;
  • the duration of the relationship between the parties;
  • the ability to delegate or sub-contract the job of the hired party;
  • whether the hired party has discretion over how long and when they work;
  • whether any insurance or benefits are provided to the hired party;
  • whether the hired party's expenses are reimbursed;
  • whether the hired party can realize a profit or loss;
  • whether the work is part of the regular business of the hiring party;
  • whether the parties have a written agreement defining the status of the hired party;
  • the method of payment; and
  • the way the hired party is treated by taxing authorities.

What is a probationary period?

A probationary period is a limited period of time after the employee commences work during which either party has the right to terminate the agreement. In some jurisdictions, termination can occur without notice or compensation (other than wages owed for hours of work already completed). Many employers require their employees to successfully complete a probationary period before offering them a longer term position.


What does "notice" mean?

Notice refers to a period of time prior to termination of the employment contract. The purpose of notice is to allow the employee to find other employment or the employer to find a replacement employee. In most jurisdictions, the law requires employers to give employees a notice period (or pay in lieu of notice) before termination. Typically, the length of the minimum notice period required by law depends on the length of the employment relationship. In some circumstances the employer may terminate the employee without notice if there is sufficient "cause". In most jurisdictions if one's employment is terminated with cause, there is no requirement on the part of the employer to provide notice or pay in lieu of notice. However, the employer must ensure that the reason for termination is properly communicated at the time of termination. Some examples of cause are dishonesty, disloyalty, insubordination, lateness/absenteeism, disruption of business of affairs, alcohol or drug use, incompetence, neglect of duty, criminal or immoral conduct and sexual harassment. Note that the employer may have to prove to a court (or other tribunal) that there was sufficient cause for termination.

How can an employer protect work product and other confidential information?

An employer can protect his/her confidential information by inserting a clause that says all confidential information including work product belongs to the employer. This clause is automatic in LawDepot's U.S. and Canadian forms. The document states that all confidential information including work product belongs to the employer. LawDepot's Employment Contract broadly defines "confidential information" to protect everything from trade secrets to customer lists.

What is the difference between a non-competition clause and a non-solicitation clause?

A non-competition clause prevents the employee from unfairly competing with the employer after the employment is terminated. This means that when the employee's employment comes to an end, he or she cannot take a job at a business which is in direct competition with the employer. A non-solicitation clause prevents the employee from inducing other employees or contractors from leaving the employer or from interfering with the employer's relationship with other employees in general. This means that the employee cannot invite the employer's other employees to move with him or her to another workplace.

Courts MAY NOT enforce a non-competition or non-solicitation clause if:

  • the clause could be injurious to the public (e.g. if it could depress the local economy);
  • the clause is broader than necessary to protect the employer;
  • the clause would cause undue hardship on the employee (e.g. it would make it difficult for the employee to find new employment); or
  • the clause has unreasonable time and geographic restrictions.



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