Employment contracts outline the relationship between an employer and an employee. They define the terms of employment between both the parties. They describe what the employee’s expectations are and the resources and the assistance that the employer will give the employee for successful discharge of his duties.
These documents are spelled out comprehensively and recorded in writing so that both parties have legal protection. These contracts are also used to define what an employee can and should not do. They also outline any grievance redressal mechanisms that address the permitted activities of both parties. All these provisions record the job expectations and deliverables from the job(1).
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In summary, employment contracts are the handbook that both parties rely on for their activities. Given how important this document is, it makes sense that individuals read the provisions of this contract carefully. If there’s any ambiguity in the terms, it is advisable to have a discussion with the employer to prevent any future disputes.
However, employment contracts and negotiating its provisions depend on the level of position that the contract is filling. For some levels, the provisions could be non-negotiable, while other provisions could agree on some terms before drafting a contract solidifying those negotiations.
Some standard terms that are present in most employment contracts
- Start and end dates of the contract
- Position of employment and titles that come with it
- Job description
- Duties and responsibilities
- Reporting and accountability
- Remuneration and other benefits offered
- Grievance Redressal mechanisms
- Activities that are permitted and those that aren’t
- Non-Disclosure clause and the term associated with it
- Non-Compete Clause and the duration for which the provision would be applicable
- Termination of the employment and the details that allow such termination
- Notice period and the events for which the period could be waived.
- Positive and negative covenants
- Representations and warranties for both the parties
- Others suited to the specific roles
There are several things that you should take note of in an employment contract. Most contracts today deal with termination as ‘at will’ employment where the employee may leave after serving a short notice and so can the employer. However, contracts where employers deem employment as ‘at will’ but employees are required to serve a notice period can be a huge red flag in any employment. Some things that you must take due consideration of when signing an employment contract, and details on what to look for in an employment contract are.
This is one of the most critical elements of your employment. This clause outlines what is expected from the employee. It is essential because the nature of your work depends on what is mentioned in this clause. Some employers detail the duties so that the employee clearly understands his deliverables. Others outline the terms in a vague description.
The problem with this vague description is that it provides the employer with leeway for questioning your duties or measuring your performance using unfair metrics. Without a comprehensive description of your responsibilities, there is a good chance that employers could affect your benefits, working hours, assistance, and other resources negatively.
This is one clause that you can’t skimp on negotiating. If you have a vague job description, ask for a detailed description. Remember that oral descriptions can be reneged on later. You can’t rely just on words. Ask for a revised contract or at least take an email confirmation from your employer.
Duration of the Contract:
Most contracts will mention the duration. However, what they might not mention are the specifics of the duration. If clear details are not mentioned regarding the term of employment, you need to ask for more information regarding the tenure that they are offering you.
The related clause to this is the termination clause. If the contract is an ‘at will’ contract, then the employee is free to go. However, most contracts stipulate that employees serve notice period before leaving. This clause also stipulates the notice that the employer should give you before terminating your employment. As long as the notice period is reasonable, there’s no problem with this clause.
However, the problem comes when the employer deems it ‘at will,’ but the employee is expected to serve a notice period. That means the employer can fire you whenever he wants, but you need to serve a notice period if you want to leave the employment. That form of employment commitment contract is detrimental to your tenure with the company
Restrictive Covenants clause means that an employer ideally shouldn’t place excessively restrictive covenants over your employment. Non-disclosure and non-compete clauses are completely normal elements of any contract. That in itself can’t be construed as restrictive.
Some common forms of restrictive covenants are
- Undue restrictions on the duration of non-compete, stifling the growth of your business
- Undue limitations on access to general information and overly frigid non-disclosure clauses
- Vague details on what constitutes invention during the employment
- Restrictive clauses that mandate that the employee should handover any inventions during employment – insofar as they stifle employee growth
- Lack of details of any compensation paid to you during the dark period in which you’re not allowed to compete
It is not advisable to take a position where you would be unable to work for a significant amount of time after leaving the job if the firm does not provide compensation during that period.
This is probably the most important clause that you should keep in mind when signing an employment contract. The compensation clause goes beyond payment of salary. Many contracts have vague bonus structures and any additional equity payments or profit-sharing plans. If there are any additional compensation programs that way, make sure you take a written confirmation on what those programs are and how the payment for those structures would be made.
By and large, compensation structures would be well-defined because vague clauses would be detrimental to the company’s interests as well. When signing an agreement, you should keep an eye out for terms that look like they are unduly beneficial for the employer while restricting your rights severely.
These are the four most important terms that you should re-read before signing an employment contract. Most contracts are standard and don’t really require heavy scrutiny. However, you may come across contracts that are unfavorable to your tenure at the company.
There is no guarantee that you can negotiate those terms that are not in your favor. But there is no harm in trying. Whatever the result, you should remember that any changes you make in the contract must be written. Otherwise, there’s no promise they’ll be affected when the time comes.