Written Employment Contracts: Advantages and Disadvantages

A written employment contract is defined as a document legally binding two parties, highlighting the obligations of both parties as well as the repercussions, if any of breaking it. It’s not a must to enter into a contract with every one of your employees. In actuality, a written employment contract is not compulsory.

This article emphasizes on the various advantages and disadvantages of using written contracts with employees.

What An Employment Contract Consists Of

Although the contract addresses certain elements such as what the employee would be doing for you (the job) and what you are going to be doing for the employee (the salary or wage), it also entails several other aspects of the employment relationship, for example:

  • Time duration of the job (one year, two years, or more)
  • Duties the employees are obliged to do.
  • Benefits (such as health insurance, vacation leave, disability leave, etc.)
  • Grounds for termination
  • Limitations on the employee’s ability to compete with your business once the employee leaves
  • Duty to protect company information and prevent the leakage of organizational secrets to the advantage of competitors.

What About Written At-Will Agreements?

In this case, the employment contract limits the employer’s authority to terminate the employment in the event of any dispute between him and the employee, usually setting the grounds and terms of the termination of the employment.

There are certain employers that require their employees to sign a written agreement stating that they are employed at will — meaning they can quit whenever they want to, and can also be fired for any reason that is not legal. The employees might be asked to sign an offer letter, handbook acknowledgment, or other document stating an at-will employment. However, these documents do not limit the employer’s right to fire the employee, but rather affirm the employer’s general right to fire at will.

Advantages of Using Contracts

One of the greatest advantages of employment contracts is that employers would be able to gain full control over the employee’s ability to leave. A typical example is when an employer is seeking for a replacement, but the costs incurred would cause a budget deficit, or perhaps very time-consuming. In such a case you might consider a written contract. This makes the employees obliged to notify you upfront in case they want to quit, hence giving you enough time to find a replacement.

In addition, employment contracts are of great use since the employee will be aware of confidential information within your establishment. You can insert confidentiality clauses that prevent the employee from leaking any secret that might be valuable to competitors. Moreover, it also protects you in the event the employee intends to use your company information in order to compete with you.

There might be situations where you’ll be able to use an employment contract to attract a very skilled candidate to offer their service instead of competing with you. If you promise the individual job security along with beneficial terms in an employment contract, that just puts the “cherry on top” regarding the deal

Last but not least, using an employment contract enables you to have total control over the employee. Let’s say the contract states that there are certain standards for the employee’s performance and grounds for the termination. It’ll be way easier and less time-consuming to terminate who doesn’t perform up to your expectations.

Disadvantages

An employment contract is a two-way street. It acts as a barrier, keeping both you and the employee confined.  Eventually, it may be a problem if you later feel that the contract terms are not satisfying.

In such a situation, if you wish to alter the contract terms or terminate completely, you’ll have to go into renegotiation. However, don’t be so sure that your employee will consent to your wishes.
For example, if you have come to a realization that you do not need an employee after six months when the contract was slated for two years, simply firing the employee would amount to a breach of the contract. Also, if the employee is meant to enjoy health benefits as it forms part of the contract, you cannot, out of the blue, stop paying those health benefits in order to save cash. The only way to alter the terms of a contract is through renegotiation. This is possible but onerous and demands the employee’s consent.

Another disadvantage is the fact that employment contracts create a special obligation to act fairly and transparently with the employee. In legal terminology, it is described as the “covenant of good faith and fair dealing.”

Treating an employee in a queer way may seem unfair to a judge and you may be held liable for not only breaching the contract, but for also failing in your duty to act in good faith, or in eyes of the law, ‘like a reasonable man would’.

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