What is an Employment Contract?

An employment contract is a legally binding agreement between an employer and employee that sets forth the terms of the employment relationship. Employment contracts will generally be enforced as long as the terms are not egregious and the employee is not required to contract away his rights under worker-protection legislation. Such contracts generally dictate certain aspects of the behavior of both employees and employers.

In the United States, most employment is at-will. This means that an employer can fire any employee he wants for any reason, except those reasons prohibited by anti-discrimination legislation, such as Title VII or the Americans with Disabilities Act. An employee can also quit at any time, for any reason. Therefore, no employment contract is required in the US.

Other countries require employment contracts to be written. In the United Kingdom, for example, the Employment Rights Act 1996 and the Contracts of Employment Act of 1963 establish a rule that an implied contract exists between employers and employees and that all employers must both provide some type of written contract within several months of an employee beginning a job and must provide written notice of reasons for termination. Regardless of whether an employment contract is optional, as it is in the United States, or mandatory, as it is in the UK, the purpose of the contract is to make clear the provisions of the relationship between worker and employer. In other words, it explains exactly what each party must do and what his obligations are in relation to the other party.

It is common for an employment contract to require an employee to give notice before leaving a job. It is also common for such a contract to specify the duties an employee must carry out to keep his job. Other provisions may also be contained in such a contract; for example, an employee may agree to not go to work for a competitor for a set period of time after leaving the job or not to share trade secrets.

Employers also have obligations under the employment contract. Such a contract will generally specify the procedures an employer must go through to terminate an employee. These procedures may involve written warnings or other steps. A contract may also guarantee an employee a specific term of employment — such as a one-year contract — as long as the employee performs his job adequately or meets certain requirements.