Essential components of a contract of employment

Written by david carnes
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Essential components of a contract of employment
Employment contract (contract 20309 image by pablo from

A written employment agreement is essential when hiring an employee. In some industries and jurisdictions, they are required. A good employment contract will include a job description, remuneration, the terms of employment, confidentiality and non-compete provisions and a termination clause. Many jurisdictions add local requirements to the form of an employment contract.

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Job Duties and Remuneration

The contract should spell out the employee's job duties in a manner specific enough to allow the employee to know what is expected of him, and general enough to allow the employer some flexibility in assigning duties to the employee. For example, although the term "buyer" is far too broad for a job description without elaboration, there is no need to list specific products or suppliers that the employee will be responsible for dealing with. The basis of remuneration should be listed (hourly, monthly, or commission, for example), and any benefits such as health insurance should be clearly described.

Term and Termination

This section should specify whether the employee is "at-will" (he can be fired for any reason or no reason at all), or whether the employee is hired for a specified duration. In the latter case, starting and ending dates should be listed, although it is also acceptable to hire the employee until the completion of a particular project. If the employee is not "at-will", causes for early termination should be listed. These should be stated specific enough to let the employee know what is expected of him, but general enough to prevent the employee from attempting to take advantage of loopholes.

Confidentiality and Non-Competition

If the employee will have access to sensitive proprietary information, a confidentiality clause binding the employee to secrecy should be included. Some employers have their employees sign separate confidentiality agreements. The employer also may wish to prevent the employee from working for its competition after the termination of employment in order to protect its intellectual property. In this case, a non-compete clause should be carefully drafted. A non-compete clause prevents a former employee from working for the former employer's competitors for a specified duration and geographic region.

Local Employment Law

The employment contract should take into account local employment regulations. In some jurisdictions, for example, legal limitations on overtime must be spelt out in the contract. Some industries require employers to list mandatory employer-employee dispute resolution forums in the contract, or pay union dues on behalf of the employee. Non-compete clauses are another area in which care must be exercised--non-compete clauses that are too broad will not be enforced. Employers in the United States generally have fewer employment law restrictions than employers in other nations, although requirements vary by state.

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