This article is written by Kyra Kudick, associate editor at J. J. Keller & Associates, Inc., a nationally recognized compliance resource company that offers products and services to address the range of responsibilities held by human resources and corporate professionals. For more information, visit www.jjkeller.com/hr and www.prospera.com.
An employment contract, simply stated, is a written agreement between an employer and an employee that defines the scope of the business relationship, including details on the obligations of the parties as well as the terms and conditions.
Types of employment contracts vary widely, and necessity is generally determined by specific business needs. Some companies may find that they don’t need nor want contracts with individual employees, while others may decide a contract is required for each position. Most companies, however, will choose to contract with employees only in specific situations, while allowing company policies (perhaps outlined in an employee handbook) to communicate expectations to at-will employees.
Here are a few situations in which you may want to consider implementing an employment contract:
Specific skill set: Perhaps your company has a project that requires the skills of an engineer, but you don’t regularly hire this type of employee. If you would like to attract a certain caliber of candidate to the position, you may need to offer salary, benefits, or perks outside your regular employment policies. Hiring the individual as a contract employee may allow you more freedom in negotiations.
Temporary/project: An example of this would be if your company has a short-term project that requires additional support, or perhaps a regular employee is taking a leave of absence and you need to cover that workload for a specific timeframe. A contract allows you to dictate the duration of the employment so there is no confusion about expectations for continued employment when the term is over. You could even exclude the employee from certain discretionary benefits under the contract, such as holiday pay or sick leave.
Confidentiality: Some positions simply have access to more sensitive information than others, and a confidentiality clause requires those employees to keep your company’s secrets — usually long after the employees have left your employment. Examples may include trade secrets, pricing, patents, or business processes. A contract may not keep an employee’s lips sealed, but it will give you grounds to seek restitution in the event someone divulges such information.
Noncompetition: Usually used in contracts with outside sales representatives in highly competitive markets, the clause has employees agree that for a certain amount of time after they leave your company (and usually within a specific geographical area), they will not become employed by a rival company, will not start their own competitive business, and will not solicit your customers with whom they’ve had contact.
Determining whether or not you need or want to implement an employment contract is entirely situational and depends upon your specific business needs. It is also important to realize that just because you have a contract doesn’t mean it will be enforceable in a court of law. If you have concerns about enforcement, you may want to consult an attorney to review your contracts, with an emphasis on any laws or legal precedent in your state.
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