What is an employment contract?

An employment contract is a legal agreement that expresses the terms of the employment relationship. It outlines the employer’s expectations, the employee’s rights within the relationship, and the conditions of employment, including any grounds for termination. The elements of an employment contract typically include:

• Terms of employment
• Salary and benefits
• Employee responsibilities
• Absence policies
• Schedule expectations
• Ownership agreements for intellectual property
• Confidentiality policies
• Conditions for termination

Both parties (employer and employee) entering an employment relationship sign the employment document. Employers usually ask new hires to sign an employment contract after extending a job offer. A new hire might sign the contract before their first day or within their first few weeks of employment.

What types of employees should sign an employee agreement?

Most types of employees in every industry sign an employee agreement. Contracts are important for protecting the rights of all parties in an employment relationship. Content included in a contract can vary by industry, the conditions of employment, and the type of employment relationship. Here are three common types of employees:

• Full-time: a full-time employee is one who works 30 or more hours per week. Full-time employees typically include permanent employees whose contracts do not specify a predetermined end date for their employment.
• Part-time: employees who work part-time usually work less than 30 hours per week. While they may be permanent employees, they might not have the same legal entitlements to benefits as full-time employees.
• Temporary or fixed-term: fixed-term employees are non-permanent employees, so contracts for these employees define how long the employee works for the employer. The employment relationship between an employer and a fixed-term employee may end after a predetermined length of time or after the completion of a project.

What are the benefits of an employment contract?

Employment agreements have several legal benefits. Some of these advantages include:

• As legal documents, these contracts protect both parties from taking legal action against the other.
• When all parties understand the conditions of employment, it reduces the risk of breaking any legal terms and offers protections for both parties within the conditions of employment.
• An employee agreement defines the role and responsibilities of the job so employees know their employer’s standards and expectations.
• Contracts can formalize your confidentiality policies, which prevent employees from disclosing sensitive information or trade secrets to those outside of your company.
• Employment contracts protect your intellectual property by defining ownership over products and materials that employees create in their role while using company resources.
• By disclosing the conditions for employment, contracts allow both parties to negotiate the terms of employment before signing to ensure clarity and fairness for employers and employees.

How to write an employment contract

Here are the steps to help you write your contract:

1. Write the title

The first step to writing an employment agreement is to give the contract a title. A concise title tells the reader what the document is before they review it. The title can be as simple as “Employee Agreement” with the name of your company.

2. Name the parties

Next, identify the parties entering the employment relationship. Identifying the parties usually includes the name of your business and the name of the new hire. For example, you could write “this contract outlines the employment relationship between Burke’s Antiques LLC. (‘the employer’) and Theodore Vance (‘the employ ee’).”

3. Outline the terms and conditions

Include the terms of the employment relationship, such as any legally mandated expectations and your own standards. For example, the law may require you to include the number of hours per week an employee must work, but you might also include your company’s specific paid time off policy. The terms you’re legally required to include may depend on your industry, the type of employee you’re hiring, and the employment laws of your province.

4. List the responsibilities of the role

Outlining the responsibilities of the job may help new hires understand your standards and what kind of work you expect them to do during the workday. Using percentages with each task description may help to express what proportion of the workday the new hire might spend completing certain responsibilities. For example, the list of responsibilities for an assistant librarian might include:

• 40% shelving books and materials
• 30% helping guests
• 20% running activities and events
• 10% cleaning common areas

5. State compensation details

Most employee agreements outline how the employer plans to compensate the employee. You can include details like how often you pay employees, the payment method you use, which holidays you cover with pay, and how you calculate overtime. You might also include information about bonuses and employee benefits.

6. Work with an employment lawyer

Finally, you might work with an employment lawyer to make sure your contract follows all its legal requirements. Consulting with a legal professional can help ensure your contract is fair and legally valid. Taking this extra step may protect your business from litigation issues.

Employment contract template

Here is a template to help you write an employee agreement:

Employment contract

This contract, dated on the [day and month] of the year [year], is an agreement between [business name] and [employee name] of [city and province]. It is governed by the laws of [province and area]. Both parties agree to the following terms and conditions:

1. Employment

The employee will perform the responsibilities outlined in this contract and those that the employer communicates to them. The employee agrees to follow all the employer’s rules, policies, and procedures.

2. Position

As a [job title], the employee will perform all essential responsibilities in compliance with this role. The employer may sometimes add responsibilities as needed and as within reason for this job position.

3. Compensation

The employer will pay the employee [dollar amount][per hour or year]. All wages are subject to mandatory deductions including taxes and employment benefits.

4. Benefits

The employer offers the following benefits [list of benefits if applicable]. Employees may access these benefits after completing a probationary period of [length of probation].

5. Paid time off and absence policy

After the probationary period, employees are entitled to the following paid time off: [list policies for vacation time, sick time, personal days, and bereavement time].

6. Termination

The relationship may be terminated by either party at any time given written notice is delivered within [length of time] to the other party.

Employment contract FAQs

Do employment contracts renew each year?

An employee agreement usually remains valid for as long as the employee remains working for a company. In most cases, there’s no need to renew an employment contract. If the conditions of employment change, like the employee earning a promotion, the employer can update the original contact to include the changes and have the employee re-sign the form.

Can an employee refuse to sign a contract?

Employees might refuse to sign a contract if they wish to negotiate the terms of their employment. However, if you require a contract, then they must sign the employment agreement before they can start working for your company. If they refuse to sign the agreement, they cannot accept the job offer.

How do employment contracts differ from job offer letters?

A job offer letter is not a formal legal document. They are unofficial documents that may present some terms of employment to the recipient. An employee agreement is a legally binding contract that both the employer and employee must agree to and sign.

What is an implied employment contract?

An implied employment contract might include any verbal promises or details included in a non-contractual hiring document like an employee handbook that presents a condition for employment. For example, if an employer says that the employee is eligible for yearly bonuses during a job interview, the employer verbally implies the contract. However, most implied contracts are only binding in the absence of a formal written contract.

Employment Contract Templates for PDF & Word

Download these employment contract templates to help new hires learn about your business standards and express each party’s rights and responsibilities.

*Indeed provides these examples as a courtesy to users of this site. Please note that we are not your HR or legal adviser, and none of these documents reflect current labor or employment regulations.