Types of Employment Contracts
There are many types of employment contracts that employers and employees should be aware of. Employment contracts are often executed between an employee and employer to create terms and conditions around their employment and to set limits on how the relationship can be terminated. However, their primary purpose is to outline the terms and conditions, responsibilities, compensation, and benefits.
The default employment status in most states is at will, which essentially means the employer can terminate an employee at any time as long as it is legal. Some states have additional statutory protection for employees. The instances where termination would be viewed as illegal would include:
- Discrimination
- Retaliation
One US state that is not at will is Montana. In Montana, after an employee has completed the probationary period the employee is protected from termination, and is only allowed to be terminated for good cause. Probationary periods are set by the employer. California has similar laws that limit termination based on certain protected characteristics.
Learn more at At Will Employment.
See Employment Contract Pricing by State
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Written Employment Contracts
A written employment contract is a more detailed document that outlines the terms and conditions of the employment. Some written contracts are considered at will, but others are not. It is common for executive-level employees to use written contracts that do not allow the company to terminate them without good cause, and obligates that they stay with the company for a set period of time.
Common terms in written contracts include:
- Wages or compensation
- Responsibilities
- Schedule
- Employment length
- Confidentiality
- Benefits
- Noncompete agreement
For written contracts that are not at will, employees cannot be terminated without good cause.
Oral Employment Contracts
Oral employment contracts are agreements that are spoken about employment, rather than written down. For example, a business owner may speak to a potential candidate on the phone, offer them the job, and agree to terms of employment. If the candidate verbally accepts, it is considered an oral employment contract.
Like written contracts, oral contracts can also be at will contracts, which means the employer can terminate the relationship with the employee without cause, as long as it is not considered illegal. Also like written contracts, oral contracts can have all of the same terms and conditions that are agreed to between the employee and employer.
Oral contracts are considered legal and binding, but are much harder to prove. They are generally more difficult to enforce and prove in court compared to written contracts. If there is a breach of contract, then it will be the employer’s word versus the employees’ word should the issue go to court.
Implied Oral Contracts
Implied oral employment contracts are a bit trickier, as they are not formally documented and can be a mix between written and oral and actions. Usually, the parties act like they have a contract, so it a contract is implied. In most circumstances, issues surrounding implied oral contracts only happen after termination since the ‘implications’ would only be considered then if there was some sort of dispute between the employee or employer.
Below are some examples of things a court would consider when deciding a breach of contract employment dispute involved implied oral contracts:
- Does the employers have policies that permit their right to fire the employee.
- Was the employee given assurance of job security from the employer.
- Employees tenure and relative success at the company.
If the employee signed an at will employment contract, they will not be able to argue there were any type of implied oral contracts. Learn more about types of employment contracts here.
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Most Common Types of Employment Contracts
As an employer, it is important to understand the different options you have when hiring so that you can make the best decisions for your business.
Permanent Employment Contracts
The most common contract is a permanent contract, which means the term of work is indefinite. Employees on permanent contracts can be full-time or part-time and typically receive benefits.
Fixed-Term Employment Contracts
Fixed term employment is often seen for seasonal workers or a teammate hired on to help with a particular project. These contracts will terminate after a specific date or milestone is achieved.
Casual Employment Contracts
Casual employment contracts are typically used when hours for the employee are unpredictable. At a baseline, the employer will guarantee a certain number of hours but may have access to additional hours if they are needed.
Zero Hour Contract
Zero hour contracts are very rare, but don’t set a minimum number of hours needed to be worked by the employee. Basically, they do not guarantee a minimum number of hours but allow for flexibility in scheduling and workload.
Types of Agreements That May be in Employment:
- Code of Ethics - A code of ethics, also referred to as an ethical code or statement of ethical principles, is a document that sets forth the expectations, standards of practice, and principles of conduct for a business or organization.
- Consulting Agreement - A consulting agreement is a contractual document that describes a working relationship between a business and a consultant providing that company with their services.
- Independent Contractor Agreement - An independent contractor agreement is a contract between a freelancer and a company or client outlining the specifics of their work together.
- Non-Compete Agreement - A noncompete agreement — also known as a noncompete covenant, a covenant not to compete, restrictive covenant, or noncompete clause — is a legal contract between employees and an employer that prevents employees from entering into competing business ventures if they terminate their employment.
- Resignation Letters - A resignation letter is used to resign from a professional position. If you are planning to quit your job, it's important to provide a resignation letter to your employer to maintain the professional relationship as well as to create a paper trail that documents your planned departure and timeline.
- Severance Agreements - A severance agreement is a contract between an employer and an employee detailing the compensation package an employee would get in exchange for the termination of the latter's employment.
Consult with an attorney when drafting important employment documents so that you know you have someone you trust to make important decisions for you in times of need.
