3 Key Considerations When Implementing Employment Contracts

3 Key Considerations When Implementing Employment Contracts

by | Mar 2, 2016 | Regulatory Compliance, U.S. Private and Emerging Business

Employment Contracts
It is undeniable that contracts are used in business across the globe.  Established business owners may have considered the idea of having employees sign an employment contract. Although it is important to ensure that expectations are clear for all parties, there are three considerations that you should be sure to keep in mind. This is because contracts are not created to protect only employers, yet also to protect employees. Three important considerations include, although not limited to, the following:


1. Binding Agreement– Employment contracts are legally binding. Once the contract is signed, all parties must adhere to the rules that were set forth in the agreement. If halfway through the contract for services, you find that your company no longer requires an employee in this position, the employee cannot simply be terminated. Breaking the contractual agreement is a clear breach of contract, unless there was some mutual agreement otherwise. If no mutual agreement to the contrary had occurred, then the company must continue to employ the contracted employee during the contract period. For example, if your company agreed to provide a benefits package in the agreement, you cannot refuse to pay these benefits later. The only way to change the terms of an employment contract is with the mutual consent of the employee who will be affected by the changes or contractual terms.

2. Covenant of Good Faith and Fair Dealing– By entering into an employment contract, a company agrees to negotiate and work with the employee in an honest and fair manner as well as in good faith. This means that a company must meet the obligations that were set forth in the contract, including ones that may have been implied. Your company is not permitted to use dubious means to avoid or disregard the agreed upon understanding of the contract. By doing so you may find yourself faced with a lawsuit for a breach of contract.

3. Employer Obligations– If after entering into an employment contract, your company finds that your employee is not meeting the expectations of the company, the employer will need to review the contract terms closely. Unless there is a contractual provision to the contrary, a company may have to continue to employ the employees even if they are not meeting expectations. In addition, this is true even if the workload decreases and you have more employees than necessary to complete the work.  You must still abide by the terms of the contract. This can be very costly if you are paying salaries and benefits to employees that are not producing an adequate work product for the company.  As such, carefully drafting these terms in the beginning is key for every employer.

Although  these are key considerations to an employment contract, one must look at each individual business to customize an agreement to meet the needs of the company. One should weigh all of the benefits and disadvantages before making a decision. While these are just a few things to consider when determining if an employment contract is right for your business, it is always sensible to seek guidance from a qualified business attorney. The professionals at Gonzalo Law LLC can assist you with your business needs.