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The Pros and Cons of Employment Contracts

Employment Contracts
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In many organizations, employees work under the implied employment conditions, determined by the federal and state laws. However, written employment contracts could be beneficial to both the employer and the employee. 

An employment contract is a signed agreement between the employer and an individual, outlining the terms of the employment. It spells out the rights, responsibilities, and obligations of each party. The agreement protects the job security of the employee as well as prohibits the employees from revealing confidential aspects of the company after the term of employment ends.

The provisions in an employment contract could include

  • Length of the employment
  • Information about the employee’s responsibilities
  • Salary and fringe benefits
  • A method for resolving any disputes
  • Relevant policy information about workplace practices, non-disclosure clauses, agreements, and other items regarding employment
  • Grounds for termination

It is always recommended that companies utilize employment contracts to agree upon the terms of employment right from the beginning. Should you need help, take a look at employment contract templates on reputable websites to get started on the documents. 

On that note, here is what you need to know before you begin drafting the contracts/ 

Pros of Employment Contracts 

Employment contracts are extremely important for both companies and individuals to set clear expectations before commencing a working relationship. 

Offers control over Employee Retention Timeline

A contract in place for a specific amount of time will prevent high-performing employees from leaving your business until the period is completed. When companies are investing in an employee with training costs, this is particularly useful to ensure that the staff will reinvest their skills in the company itself. If they violate the terms, then a contract provides provisions of penalties and will encourage the employees to comply with the policies. 

  • Can entice individuals to join your company 

As a contract protects an employee in several ways, it can be a useful tool for recruiters to attract favored candidates to get on board. The agreement will ensure that they get the benefits as well as the job security for the mentioned duration. 

  • An additional layer of protection

The written agreement will guarantee that both the company’s as well as the employer’s interests are protected, reducing the risk of breaching confidentiality. The contract will include legal recourse in cases of conflicts. 

Cons of Employment Contracts

While the advantages might seem meritorious, much like every other business aspect, a company should also weigh in the potential demerits. 

  • Limits flexibility 

As a binding document, it could restrict the flexibility of the choices and the decisions you make in the future. If you want to make any changes, then you would have to renegotiate the terms, and there is no guarantee that both parties would be able to reach a compromise. 

  • Obligation to Continue the Employment

If the contract outlines termination procedures, then the employer cannot terminate an employee without cause. Companies have to follow and meet the conditions set in the contract. This will reduce the company’s capacity to make changes in labor needs easily. The employer might face repercussions in financial loss if you choose to terminate the contract early. 

  • Legal fees 

Businesses will have to consult authorized agencies to ensure that the contract is legally bound, and should take into account the related expenses. Not every company might be able to afford to enforce employment contracts with each of its staff. 

An employment agreement requires both parties to deal fairly with each other and act in good faith. While it will certainly imply honesty, depending on the circumstances, it might not always be in the best interest to stay within the terms of an agreement. 

When in Doubt

If you think your company should be enforcing employment contracts, the best move is to discuss it with an employment attorney. The additional expenses and the effort are worthwhile, considering that such an agreement will protect your company against any legal discords in the future.


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Employment Contracts
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