Employment Agreement: Definition, Top Terms to Know

An employment agreement is a written contract that establishes the terms, conditions, and obligations of employment between an employer and an employee. An employment agreement may be oral or written. The terms can be reached through a verbal contract, though it is generally best practice to reduce the terms of employment to writing. The contract outlines both parties' rights and responsibilities and serves as a framework for the employment relationship. The employment agreement normally includes several conditions, which may differ based on the job's nature and the employer's and employee's unique needs. Let’s discuss more about it in the blog below.

Essential Components of the Employment Agreement

An employment agreement normally comprises several components that explain the terms and circumstances of an employer's and employee's employment relationship. The components may differ based on the nature of the work, industry, and local legislation. It is important to consult with a lawyer to ensure that the employment agreement - whether written or verbal - complies with state and federal law applicable to the employer. However, the following are some standard components found in employment contracts:

• Parties: The agreement defines the parties involved, including the legal name, address, and contact information of the employer, as well as the employee's name, address, and other essential information.
• Job Title and Explanation: The employee's job title, department, and a full explanation of their tasks and responsibilities are all included in the contract. It clarifies the scope of work anticipated by the employee.
• Salary: This section describes the employee's pay plan, which includes basic salary, bonuses, commissions, and any other types of income. It may also address payment frequency, such as monthly, bimonthly, or weekly, as well as any compensation modifications or raises that may be appropriate. There are usually specific laws within a state that govern how much and how often an employee must be paid, and it is critical to speak with an employment lawyer for clarity if not already known to the employer.
• Working Hours & Schedule: The agreement specifies the employee's regular working hours, breaks, and rest intervals. It may also handle issues like flexibility, part-time or full-time status, and shift or schedule rotations. These types of benefits are generally governed by applicable labor laws, including the right to overtime, limitations on work schedules, and other regulations.
• Benefits and Perks: This section describes the employee's right to health insurance, retirement plans, vacation days, sick leave, parental leave, and other perks or allowances the employer grants.
• Probationary Term: The agreement may include a probationary term during which the employer evaluates the employee's suitability for the position. It describes the probationary period's duration, circumstances, and evaluation criteria.
• Termination: This section describes the terms and processes for ending the employment relationship, including the notice periods needed by both the employer and the employee. It may encompass dismissal without cause, dismissal with cause, resignation, or severance arrangements.
• Confidentiality and Non-Disclosure Agreement: Many agreements include language requiring workers to keep private or sensitive corporate information, trade secrets, customer data, or intellectual property confidential during and after employment.
• Intellectual Property Protection: In sectors where employees develop intellectual property while working, the agreement may cover ownership, usage, and protection of such intellectual property. It assures that any work-related ideas, innovations, or creations belong to the employer, protecting valuable assets and averting ownership conflicts.
• Non-Competition and Non-Solicitation Terms: Some agreements may include terms that limit an employee's capacity to work for rivals or solicit clients or employees of the employer for a set period after termination. Employers may develop stand-alone non-compete agreements, or they may include non-compete terms within the employment agreement.
• Dispute Resolution: The processes for settling disagreements between the employer and the employee, such as mediation, arbitration, or litigation, are specified in this component. It may also specify the appropriate jurisdiction, called a choice of venue provision, and the applicable law, called a choice of law provision.

Types of Employment Agreements

Here are some examples of employment agreements:

• Permanent Employment Agreement: This is the most prevalent form of employment agreement. It establishes a continuing job relationship with no set expiration date. It includes the terms and circumstances of employment, such as work tasks, remuneration, benefits, and termination restrictions.
• Fixed-Term Agreement: This agreement is utilized when employment is for a specific time or a project. It specifies the start and end dates of the work connection. Fixed-term contracts are frequently utilized for seasonal employment, temporary roles, or when additional personnel is required for a set period. Fixed-term agreements may have legal limitations in some jurisdictions, and employers should be aware of any restrictions on the use of such contracts.
• Part-Time or Reduced-Hours Agreement: This agreement is used when an employee works fewer hours than a full-time employee. It outlines the agreed-upon amount of hours, work schedule, and prorated benefits. Part-time contracts are widely utilized for employees who choose or require a reduced workload or roles that do not require a full-time commitment.
• Casual or Zero-Hour Agreement: This agreement is distinguished by the absence of fixed minimum hours. Employees on casual or zero-hour contracts have a flexible working schedule and are often called in as required. They may not have regular working hours and are frequently ineligible for certain perks connected with permanent or fixed-term contracts. However, the eligibility of casual or zero-hour employees for benefits can vary depending on local laws and regulations, as some jurisdictions may require employers to provide certain benefits to casual or zero-hour employees.
• Freelance or Independent Contractor Agreement : People can be hired as freelancers or independent contractors under an agreement instead of becoming an employee. These contracts specify the scope of work, deliverables, payment arrangements, and length of the engagement. Freelancers often have greater control and freedom in how they perform their tasks.
• Probationary Agreement: This agreement is used when an employer wishes to examine an employee's performance and suitability for a job during a probationary term. It often contains a shorter notice time for termination and may include particular performance standards or goals that the employee must fulfill to obtain permanent employment.

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Benefits of the Employment Agreement

The following are the benefits of an employment agreement:

• Clarity and Consistency: Employment agreements give a clear and full knowledge of the terms and conditions of employment. They define employment expectations, duties, and performance criteria, eliminating misconceptions and fostering organizational uniformity.
• Job Security: Agreement that stipulates the length of employment, termination circumstances, and notice periods to provide employees with job security. They create a framework for fair and legitimate termination, safeguarding employees against arbitrary dismissals.
• Defined Monetary Terms: The employment agreement details the employee's remuneration package, which includes salary, bonuses, perks, and entitlements. This ensures that employees are informed of their financial incentives and helps to prevent compensation conflicts.
• Work-Life Balance: The employment agreement can cover working hours, leave entitlements, and other work-life balance factors. Contracts that explicitly outline these requirements promote a healthy work-life balance for employees, increasing overall well-being.
• Career Development: The employment agreement may include training, professional development, and career promotion provisions. This displays the employer's commitment to employee growth and offers a framework for career advancement.

Key Terms for Employment Agreements

• Compensation: Indicate the employee's salary or hourly rate, any bonuses, the structure of their commissions, and any additional payment types.
• Benefits: Describe the range of amenities available to employees, such as health insurance, retirement plans, etc., and other perks like free meals or transportation given by the employer.
• Termination and Severance: Describe the circumstances under which either party may terminate the employment, including any applicable notice requirements, grounds for termination, and any severance benefits or pay.
• Probationary Period: The amount of time, if any, that must pass before the employer can decide if the employee is qualified for the job.

Final Thoughts on Employment Agreements

Employment agreements are generally necessary to establish a mutually beneficial connection between employers and employees. They function as a formal agreement outlining the terms and circumstances of employment, protecting both parties rights and interests. Employers may develop agreements encouraging fairness, transparency, and legal compliance by considering several elements, such as legal compliance, clarity of wording, and complete coverage of essential terms. Seeking legal counsel and reviewing industry-specific standards can assist in ensuring that agreements are in accordance with applicable laws and regulations. While counsel is not always required, depending on the size of the business, it often a good idea to speak with an employment attorney periodically to ensure compliance. Employers may provide a firm basis for a successful and joyful working relationship by developing well-crafted employment contracts that promote productivity, loyalty, and mutual pleasure.

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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Meet some of our Employment Agreement Lawyers

Donya G.

Donya G.

I am a licensed and active NY and CT Contracts Attorney, with over 20 years of diverse legal and business experience. I specialize in reviewing, drafting and negotiating commercial agreements. My practice focuses on working with small business clients as well as clients from international brokerage firms on acquisitions, especially in the Ecommerce space; drafting, negotiating, reviewing and advising on business agreements; ; breach of contract issues, contract disputes and arbitration. I am licensed to practice in New York and Connecticut, and am a FINRA and NCDS Arbitrator. My experience includes serving as General Counsel to small businesses. This entails reviewing, updating and drafting contracts such as employments agreements, asset purchase agreements, master services agreements, operating agreements and a variety of business and commercial contracts. Additionally, I assist clients with business strategies, contract disputes and arbitration. My diverse experience allows me to give my clients a well-rounded approach to the issues they face. I have been at top AML law firms; a Vice President at an Investment Bank, a Civil Court Arbitrator presiding over cases in contract law, commercial law, a Hearing Officer, presiding over cases and rendering written decisions, and a Judicial Clerk to a Civil Court Judge. It would be a privilege to assist you and your business with my services.

Jane C.

Jane C.

Skilled in the details of complex corporate transactions, I have 15 years experience working with entrepreneurs and businesses to plan and grow for the future. Clients trust me because of the practical guided advice I provide. No deal is too small or complex for me to handle.

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Creative, results driven business & technology executive with 24 years of experience (15+ as a business/corporate lawyer). A problem solver with a passion for business, technology, and law. I bring a thorough understanding of the intersection of the law and business needs to any endeavor, having founded multiple startups myself with successful exits. I provide professional business and legal consulting. Throughout my career I've represented a number large corporations (including some of the top Fortune 500 companies) but the vast majority of my clients these days are startups and small businesses. Having represented hundreds of successful crowdfunded startups, I'm one of the most well known attorneys for startups seeking CF funds. I hold a Juris Doctor degree with a focus on Business/Corporate Law, a Master of Business Administration degree in Entrepreneurship, A Master of Education degree and dual Bachelor of Science degrees. I look forward to working with any parties that have a need for my skill sets.

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Ms. Tanu Chaturvedi Esq. brings vast experience: experience as Corporate Counsel at a multi-million dollar international corporation, experience as a legal & business leader in the legal department at the world's leading mission capability integrator in the nation's capital that has been named a Top 100 Employer Forbes by state & Top 25 Defense Contractor in the world & named Top 7 in the Washington Technology Top 100 2022 & one of the largest defense contractors in the marketplace & has also been named as Top Managed Company by The Wallstreet Journal & included in the Inc. 500, experience as the sole Attorney at a national company that was recognized in 2017 as a top employer in the capital by "The Washington Post" & has also been listed on the Inc. 5000 more than once as one of the fastest growing companies in the nation, & in 2019, & named as a Finalist for the DC Moxie award: for businesses that demonstrate significant boldness & innovation in business strategy, experience working at one of the world's largest insurance brokerage firms, one of the largest law firms in the capital, a boutique start-up that specializes in investigations, security, & risk, the world’s largest professional service firm (largest of the “big 4” companies) in conjunction with the nation’s executive law enforcement agency, experience working at a corporation with global reach that was lead by a former cabinet member of the Clinton administration, experience working at a Fortune 500 in one of the world's largest insurance markets, at an internationally recognized boutique law firm, experience as the only female legal professional in the felony division of a criminal department in the nation's most dangerous jurisdiction as an undergrad, & experience working in the offices of public officials. She is also a graduate from two different internationally recognized institutions that have a record of turning out graduates with the skill to lead in their industries & distinguished law school graduate from an ABA accredited law school that received recognition for academic & leadership achievement. She is an invited contributor to legal blogs, and she enjoys advocating for increased literacy. Notably, she also supports advocacy for the performing arts as a former graduate of a magnet school for the performing arts. Please don’t hesitate to reach out to her with any questions, and she looks forward to hearing from your team.