The Importance of Employment Contracts

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papersAccording to the Oxford English Dictionary, the first definition of “contract” is, “A mutual agreement between two or more parties that something shall be done or forborne by one or both; a compact, covenant, bargain; esp. such as has legal effects.”

What is an employment contract? An employment contract defines the rights and responsibilities between two parties, naming one the “Employer” and the other the “Employee.” Of course, there can be different variations; this is only a basic example.

Many companies do not require their employees to sign a contract. Instead, they require employees to sign what is dubbed a “Non-Compete.” A non-compete outlines an employee’s conditions and restrictions – both during and for a period after the employee has left the company, usually a period of one year.

Employment contracts may outline how long an employee is contracted to stay with a company, such as two or five years. If either party breaches the contract, there is usually a designated monetary penalty.  On the other hand, an employee who does not have an employment contract and only want we define as a non-compete, his or her employment is “at will.” Both the employee and the employer can end the employment agreement at any time. This means the employee can quit anytime and the employer can lay off or discharge the employee at any time.

Why are employment contracts and non-competes important to you? Employment contracts and non-competes are meant to protect not only the rights of you as an employee, but also the rights (or powers) of your employer. For example, if your contract, non-compete, policy book, and/or employment handbook have absolutely no information about the enforceability of changes in salary, then your employer has the power to change your salary at any time. Your employer may change your compensation package, your commission structure, even your vacation time policy. Additionally, if not stated specifically in a contract, your employer can make you work more hours for the same amount of money.

While there is nothing you can do if you have already signed a contract, there are things you can do to protect yourself in the future. Upon accepting a new position at any company, even a new position within your current company, always review employment contracts and non-competes. Read them all the way through, and consider having a lawyer read it with you. Be sure you understand what your company can dictate and your rights in a particular state. Certain states, such as Illinois and California, have different regulations for overtime. In New York State, employers are required to show employees a wage statement, which they must sign to confirm their rate of pay and how often they are paid.

Non-competes protect companies from losing employees to competitors. After leaving a company, an employee who signed a non-compete is usually barred for working for any company that competes with their past employer for a period of around 12-18 months. If the employee does not abide by these rules, he or she can face an expensive lawsuit. Non-competes can also restrict former employees from recruiting current employees. Read your non-compete, employment contract, employee handbook, and company policy book to understand your rights.  It can save you thousands of dollars and can protect your rights as an employee.

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Laura Pierson is a former English teacher who now works in the Human Resources Recruiting department of a large Fortune 500 company. She is passionate about recruiting, employee benefits, and employee relations. In her spare time, Laura is a freelance writer and blogger for FreeResumeBuilder.