Is an Employment Contract Necessary for Employees?

Giving Employees an Employment Contract
Why Give an Employee an Employment Contract. PeopleImages.com/Getty Images

Do I Need to Give Employees an Employment Contract?

Most employees do not have, nor do they need, an employment contract. They work under an implied employment contract, meaning that the general terms of employment are determined by state and federal laws and common law (previous court cases). For example, if you are hiring an administrative assistant, shipping clerk, or IT person, you probably don't need a contract.

Why You Might Want an Employment Contract for an Employee

Sometimes you need to prepare an employment contract and have a new employee sign it. This is the case most often with professionals or top management individuals. Reasons you might want a contract include:

  • When the employee would be difficult to replace. A professional with very specific skills or an employee who has knowledge of your market and your competition would be one example. Or it might be difficult to find and train a replacement in your field or area. In these cases, you would use the contract to limit the employee's ability to leave without notice and to give you time to find a replacement.
  • When the employee has knowledge of confidential information, trade secrets, or other sensitive materials. In this case, you would want to include a confidentiality clause in the contract to prevent the employee from divulging this information during and after the end of the contract.
  • When you don't want the employee leaving and going into competition with you. In this case, you would want the employee to sign a non-compete agreement as part pf the employment contract, limiting his or her ability to compete with you within a certain time within a defined area and in a specific type of business.

    You can see that in most cases, with hourly employees or lower-level salaried employees, you probably don't need a contract. But with professionals and top management, a contract can protect you against problems such as those outlined above. In some other special circumstances, you may decide that an employee should have a contract. For example, if you hire an office manager or administrative assistant, and that person deals with highly confidential information, you may want him or her to sign a contract.

    What Should I Include in an Employment Contract?

    The language of an employment contract should include a general description of the duties, restrictive covenants like the non-compete agreement mentioned above, and specifics about what happens if a contract employee leaves. 

    An employment contract should be in writing; this is not the time for a handshake because there are too many complex issues to take a chance on a misunderstanding. Check with an employment attorney to discuss the need for a contract and specific contract language.