Essential Elements of an Employment Contract

As your small business begins to grow, you may start considering hiring additional employees. When undertaking this process, it is important that you not only protect your business but also your employees. A good way to do this is through a well-written employment contract.

What is an Employment Contract?

An employment contract is a legal document that outlines the terms and conditions for both, the employer and employee. The employee needs to agree to all of the terms outlined in the employment contract and sign it for it to be legally binding.

Essential Elements of an Employment Contract

Here are some essential elements that should be included in all employment contracts.

Terms of Employment

The terms make up one of the most important elements. You want to specify whether it is a full-time, part-time, or temporary position. You may also want to indicate the length of the employment with a specific end date if the position is temporary. It is also important to indicate if you are going to implement a probationary period. Details such as the length of this probationary period should be included.

Compensation and Benefits

Compensation details should include the annual salary amount or hourly wage. Additional information regarding potential incentives or raises should be specified. The ability to earn a commission should also be noted, including how it will be calculated.

The benefits plan should be laid out so that the employee understands exactly what is included. You should also provide information about the employer/employee split in terms of what percentage each side will pay.

Job Description

It is important to provide an employee with a clear outline of the job requirements. This should include job title, responsibilities, and the schedule that the employee is expected to work. You could also include any performance goals that you would like to employee to achieve and how these will be measured. This will ensure that there is a mutual agreement and understanding between both the employee and you, with the ultimate goal of creating a professional and efficient relationship.

Employment Absence

Make sure to clearly explain the time off policy. This will include sick days, family emergencies, and/or unpaid leave. You should also detail how many paid vacation days are available per pay period and whether this amount increases with tenure. It is important to outline the process within the written contract for each scenario so that there is no confusion when such events arise.

Non-disclosure/Confidentiality Agreement

You should make note of any information that is accessible to your employees. This can include business trade secrets and client lists. This agreement should indicate what exactly is to be kept confidential and for how long.

Termination and Severance

It is important to be aware of notice requirements for termination in the Employment Standards Act. This section should include the different scenarios for terminating an employee contract and the notice that is required. It is also beneficial to include a severance plan based on each ground of termination. A severance plan is not required but can be used to outline aspects such as severance pay, if employee benefits will continue, if you will assist the employee in finding another job, etc. Having this clearly outlined will help prevent any confusion and arguments when the working relationship does come to an end.

You may also wish to include provisions for after termination. This can restrict an employee from starting their own competing business in the same industry for a specific time period. This termination clause will provide protection for your business. On the other hand, the employee may want a provision included that would prevent you, the employer from limiting their future job opportunities.

Types of Employment Contacts

Another aspect to consider when creating an employment contract is what kind of employment contract is best for your situation.

Indefinite-Term Contracts

An indefinite-term contract is an employment agreement without a specified end date. It continues until either the employer or employee decides to terminate the relationship.

This type of contract is usually used for permanent positions where the employer expects the need for the role to be ongoing and not limited to a specific duration.

Fixed-Term Contracts

A fixed-term contract specifies a clear start and end date for employment. These contracts are often used for specific projects, seasonal work, or to cover for permanent staff during periods of leave.

Fixed-term contracts are ideal for situations where the employer requires staff for a specific period or project. It's important to clearly define the duration and scope of the work in these contracts.

Contractor Agreements

Contractor agreements are used when hiring an independent contractor rather than an employee. These contracts outline the terms of the service provided. This typically includes scope of work, payment, and duration.

Contractor agreements are suitable when you need specialized skills for a particular project or task, but do not require or cannot commit to a long-term employment relationship.

Final Thoughts

This list describes some of the essential elements that should be included in all employment contracts. However, there are various other elements that also need to be considered based on your specific situation and business. If you are thinking about hiring your first employee, you should reach out to a small business lawyer to discuss which elements need to be included in your employment contract. A well-written employment contract can go a long way toward protecting your business and ensuring a healthy employee-employer relationship.

FAQ

Is an employment contract necessary?

While not always legally required, an employment contract is highly recommended as it provides clarity and protection for both the employer and the employee. It helps to prevent misunderstandings and disputes.

How does an employment contract differ from an offer letter?

An offer letter is an informal job offer that may outline the main terms of employment. An employment contract is more comprehensive and is legally binding once signed.

Can an employment contract be modified?

Yes, but modifications must be agreed upon by both the employer and the employee. Any changes should be made in writing and signed by both parties.

What happens if an employment contract is breached?

If either party breaches the contract, there may be legal consequences. This could include aspects such as an employee not being fairly compensated or specific performance-related issues of the contract terms.

Are there different types of employment contracts?

Yes, there are various types, including full-time, part-time, temporary, and freelance contracts, each with its specific terms and conditions.

Can an employee negotiate an employment contract?

Absolutely. You should encourage employees to review and negotiate any terms they're not comfortable with before signing.

Where can I get legal advice on employment contracts?

It's important to consult with a qualified employment lawyer or a legal advisor to get accurate and relevant legal advice on employment contracts. If you would like advice, please feel free to contact our team at Parr Business Law.