Most employees don’t have employment contracts and they don’t need them. They work under an implied employment contract, meaning that the general terms of employment are determined by state and federal laws and previous court cases.
Which Employees Need A Contract?
You probably don’t need a contract if you’re hiring an administrative assistant, a shipping clerk, or an IT person, but it can be a very good idea when you’re filling other positions. The following are some instances where a contract is necessary.
When the Employee Would Be Difficult To Replace
A professional with very specific skills or an employee who has knowledge of your market and your competition would be one example of someone you might have a hard time replacing if they should suddenly leave your employ. You’ll want to consider it if it might be difficult to find and train a replacement in a specific field or area. In these cases, you would use the contract to limit the employee’s ability to leave without giving you ample notice.
When the Employee Has Knowledge of Confidential Information
This might include trade secrets or knowledge of other sensitive materials. In this case, you would want to include a confidentiality clause in the contract to prevent the employee from divulging this information during and after the end of the contract.
When You Want To Avoid Competition
An employment contract can be a good idea when you don’t want the employee leaving and competing against you for business. You would want the employee to sign a non-compete agreement as part of the employment contract, limiting their ability to compete with you within a certain time period and within a defined geographic area in a specific type of business.
What Else Should You Include in an Employment Contract?
The language of an employment contract should include a general description of the duties you expect the employee to perform, as well as restrictive covenants like the non-compete agreement mentioned above. It should include specifics about what happens if a contract employee leaves.
Consider the Disadvantages, Too
Remember that legal contracts bind both parties. You’ll have obligations and responsibilities under the terms of an employment contract as well. The contract might set an employment term. If the employee isn’t really working out, you’d be stuck with them regardless—or you’d have to go back to the drawing board and negotiate a new contract with them to cover the early termination. Some courts might hold you to a higher standard in the event of a dispute and a lawsuit. This is a threshold you might not quite have to reach if you didn’t enter into an employment contract. Your every action and decision could be placed under a microscope.
The Bottom Line
Check with an employment attorney to discuss the need for a contract with a specific employee if you’re unsure. A legal professional can also make sure that the contract language you include is correct and sufficient. In most cases, you probably don’t need contracts with hourly employees or lower-level salaried employees, but if you hire an office manager or administrative assistant who deals with highly confidential information, you might want to sign them to a contract. And contracts can protect you against some serious problems with professionals and top management as well. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
