A Brief Introduction About the Work Contract
A work contract is entered between an employer and employee in the course of employment. It is generally drafted in the case of short-term projects and in a freelance capacity rather than full time. It is also drafted at the time of the hire of high-level management. Different procedures are followed by full-time employees.
The contract mentions the terms, conditions of the work and the compensation being offered for the same. It clarifies the rights and obligations each party has towards the other and also provides the measures for conflict resolution and termination of the contract in case any party wishes to opt-out. Further, it keeps in place a legally binding document that can be presented for legal action in case of any situations that warrant for it.
Who Takes the Work Contract– People Involved
A work contract is entered into between an employer who is a company or an individual, in the course of the employment of an individual for a role. The contract is usually for short-term projects and freelance work rather than full-time employment. The contract may also be entered into with high-level management personnel in the form of an executive employment agreement.
Purpose of a Work Contract– Why Do You Need It
The contract protects the concerned parties in the case of any disputes in the future. It creates an obligation for the parties to act fairly and carry out the instructions of the contract.
It is also a document wherein the terms of employment, job role, and compensation are explained in detail to have a common understanding of what is expected from each party. It provides a ready reference for the work to be undertaken.
The agreement also serves to help the maintenance of company standards by making the new employees aware of the acceptable code of conduct.
Contents of the Work Contract– Inclusions
This contract aims to provide a final document defining the terms of the job being taken up. The inclusions to be made in the contract are discussed below.
- The details of the employee and employer, including their names, the industry of the company, the job role, etc. are to be mentioned.
- The date from which the contract becomes active and its duration.
- The description of the work and its caveats; the parties should aim to define the role very clearly to enable a fair compensation and to avoid conflicts in case the work needs to be increased or reduced later.
- The general company policies relating to the expected conduct, dress code, work timings, etc., relevant to the role must be included.
- A breakdown of the compensation must be mentioned. This can be in the form of a salary, project-based fee, commission, or even in the form of stocks of the company. The details of any taxation element may also be mentioned.
- The conditions to be maintained for continued employment must be stated. In case the employee is required to maintain specific standards, the same must be mentioned.
- If any employee is hired on trial, to be converted into a more substantial role based on their performance, a clause on the probation must be included.
- The left structure allowed for the workers or employees must be stated clearly.
- Other rights and obligations of each party concerning the contract.
- Another relevant clause is that of non-disclosure. In the course of employment, the staff may learn trade secrets and information that is confidential to the employer. Such information is expected not to be shared with any outsiders and is governed by a non-disclosure clause in the contract.
- In case any party wants to terminate the contract, the means to do so must be mentioned. Generally, the employees are expected to inform the company well in advance and work for a notice period wherein they can handover their work to another employee, and the employers are expected to compensate the employees for the same. Further, the grounds for such termination must be mentioned in the contract.
How to Draft a Work Contract?
While preparing this contract, the following should be kept in mind:
- The work being done by the person employed is for the company, and the ownership of such work is to be in the name of the company or the employer and not the creator or employee.
- A non-compete clause is essential, especially in the case of the hire of senior-level employees. The company must protect itself from the employee taking his or her practice elsewhere and also them taking the business from the company. A large percentage of the roles involve dealing with external clients who eventually have a working relationship with the company personnel rather than the company.
- The scope of work contract should be clearly defined, and the roles must be laid out in detail.
- The duration of the contract is generally not fixed. However, the contract may also be for a one-time project, wherein the period may be stated. Alternatively, in the case of recurring projects where the hires are either on a freelance or a retainership, the duration is understood as until terminated by either party.
At the time of negotiations of an employment contract, the following items must be discussed and agreed upon by both parties.
- The job role and what work is expected to be done. The role should be discussed in detail to allow for fair compensation. Further, in case the scope of work is to be modified later, it protects the interests of the employee.
- The expected deadlines or the duration of the project should be discussed. It allows the parties to plan the work and execute it within the expected timelines.
- The compensation methods, frequency, and amount must be agreed upon.
- The work location may be discussed. For instance, the employee may work from the company office or may also work independently from home.
- The various terms of employment must be discussed. This includes the leave structure, perquisites offered, reimbursements, etc.
Benefits & Drawbacks of a Work Contract
There are numerous benefits to having a work contract in place. It includes the following:
- A contract reduces the risks involved in hiring. The company needs to protect its interests. They hire unknown people who get access to important information and are also being paid to perform certain tasks. The contract protects the company from non-performance of the work.
- It provides a comprehensive list of the scope of work. It helps the employee obtain fair compensation, and in cases where the scope is to be modified, the contract protects the employees from unfair pay.
- The expectations form both parties are made clear, and as such, it allows for a mutual understanding.
- Means to solve disputes are stated that allows for a smooth flow of work.
Despite these benefits, the drawbacks of having the contract in place also need to be considered. It can be seen in the following:
- Having an employment contract may lead to damaged trust. The employee may feel that the company does not trust them to work diligently and honestly.
- Job roles may be dynamic, requiring the contract to be updated continuously. This becomes a cumbersome and time-taking process.
- The process may be costly, especially given the constant updates.
What Happens in Case of Violation?
In cases where an employee does not perform the work or is not compensated on time, the work contract may be considered as violated. In the event of such breaches, the parties are entitled to remedies.
- The parties may sort out the issues using the methods stated in the contract. For instance, where there is a delay in payment, the contract may provide for some time to rectify the same. The contract may alternatively provide for the continuance of work once the payment is made.
- On breach, the contract may be terminated. The contract states the events that may lead to termination, and a contract breach(1) is generally one of the events. In this case, the party that commits the breach is to compensate the aggrieved party to the extent of their notice.
- Where the contract alone does not suffice, the matter may be taken to court. The contract is a legally binding document that holds both parties responsible. The aggrieved party is entitled to sue for damages.
The main purpose of the agreement is to establish the scope of work and the compensation to be offered. It allows both parties to have a common understanding of the expectations and obligations towards one another. This ultimately leads to a smooth flow of work and timely performance. As such, we can conclude that despite not being a legal requirement and despite the drawbacks associated with the contract, it is in the best interest of the parties to have it in place.