Structure of an Employment Contract

A written employment contract is a good idea when hiring an employee because it provides structure and legal enforceability to the employment relationship. An effective employment contract will cover job duties, remuneration, duration of employment, grounds for termination and, in some cases, confidentiality and non-compete clauses. It should also comply with local law.

Job Duties

• Careful wording should be used to describe employee job duties. If the wording is too broad, the employee will not know what is expected of him and the employer will be at a disadvantage in enforcing the contract against the employee for failure to perform vaguely described duties. If the wording is too narrow, the employer will lack the flexibility to reassign the employee to other job duties when business needs require it. Simply describing an employee as a salesman, for example, is likely to be inadequate. Nevertheless, there is no need to list every product that the employee will be responsible for selling.

Remuneration

• The contract should clearly specify the basis of the employee's remuneration -- hourly wages, a monthly salary or a commission, for example. Any benefits, such as health insurance or a retirement plan, should be described in detail, along with any conditions attached to them, as in the case of employer matching funds. In the case of an hourly employee, extra pay for weekend, holiday or overtime work should be listed.

Term and Termination

• Two types of employment arrangements are possible -- "at will" employment, in which the employer is free to fire the employee at any time for any reason, and term employment, in which the employee is hired for a specified period or until a particular project is completed. With term employment, starting and ending dates should be specified. The contract should also include grounds for termination, if the employee is not at-will. Grounds for termination should be drafted in a manner that strikes a balance between vague wording and overly specific language. "Unethical behavior," for example, is too ambiguous to legally enforce. On the other hand, you can't list every single act an employee may commit that may justify termination.

Confidentiality and Non-Compete Clauses

• If the employee has access to sensitive or proprietary company information, it may be important to restrict the employee's activities both during and after employment. To protect the employer from confidentiality breaches during employment, an employer can either include a confidentiality clause or have the employee sign a separate confidentially agreement. To protect against confidentiality breaches after the termination of employment, the employer may have the employee sign a non-compete clause or agreement that prevents the employee from working for the employer's competitors for a specified time.

Employment Law

• Employment law varies substantially by jurisdiction. In the United States, the federal government as well as every state has enacted a body of employment law. Employment law might require or forbid certain terms in employment contracts or require a certain pay rate for holiday or overtime work. The terms of any employment contract should be checked against applicable law to ensure it complies.