While having a written contract with your employees is not a legal requirement, many employers choose to have them. Contracts generally specify the length of a job, the employee’s responsibilities and benefits, and intellectual property rights. Contracts limit an employer’s right to terminate a worker by stipulating specific grounds for doing so but also prevent an employee from just walking off the job without consequences.
Advantages of a Written Contract
A written contract gives you leverage over your workforce, because you have more control over what your employees do and the circumstances in which you hire them and let them go. You can include in the contract specific requirements on the quantity and quality of the work your employees perform so that there is a clear understanding of what is expected in terms of work output. For these reasons, terminating an employee under contract is easier and less stressful than for a worker who is not.
On the other hand, written contracts make sense if your business would suffer if an employee decided to up and leave, which he or she can do under at-will employment. A contract will include some penalty if the worker leaves the job prior to fulfilling the terms, and stipulations can be anything from a minimum length of service to a requirement for 90 days’ notice of intent to quit.
Contracts can also include terms that protect the company’s sensitive information by mandating that an employee not disclose what is learned during the course of employment outside of the workplace; this can be of critical importance if your company is designing new products or conducting research. A contract can protect you even after an employee leaves, as you can include a non-compete agreement to prevent a worker from taking what was learned from you, and your client list, to set up his or her own business and directly compete against you.
A contract may be used to protect a potential employee as well; if you have a strong interest in attracting talent and knowledge, a contract could ensure that a well-qualified potential employee would receive certain benefits and job security that was promised at an interview, making it more likely such an individual will come and work for you.
Reasons Not to Use a Written Contract
Contracts are binding, so of course this will always place some limitations on you. As your business needs change, you will not be able to adjust the terms of a contract without a renegotiation. Most of the time this comes down to money; you may go through an economic downturn and need to lay off workers or reduce benefits, and this will not be possible under the terms of the contract. Likewise, you cannot ask the worker to do the work of a higher-paid employee when the worker will not receive that pay, or do the work of a lower-paid employee and have wages cut, and this will reduce your flexibility.
You can, of course, change a contract that no longer suits you, but it may not be simple. You will need to negotiate the new terms and conditions with your employee. If your workers do not accept the changes, you will be guilty of unfair dismissal if you terminate them or if they refuse to continue to work for you, and they may have the right to go on strike.
To decide whether or not this loss of adaptability is outweighed by the benefits of contracts, you have to be familiar with your business plan and market conditions. You may determine that you would like to have contracts for key employees but not for rank and file. For those workers, you should still have them sign an employment agreement so that they acknowledge you have not made any promises that may be implied in the employee handbook.
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