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What is an Employment Contract and Why is it Important?

Posted by Insightlink on 10/28/22

Running a company is an incredibly complex and taxing process that requires incredible attention to detail. This simple fact can prove to be quite a detriment since, focusing too heavily on the big picture and the financial aspects of the corporate world, people in charge of one organization tend to take some things for granted and overlook the problems that arise as a result.

The employment contracts are definitely one of those small Jenga pieces that don’t look so critical but can bring the whole construction down.
To put it simply, the entire professional relationship between an employer and an employee is built around some sort of employment agreement. Failing to outline the general framework of this relationship by phrasing some of its stipulations poorly can sometimes cause irreparable damage.
employment contract
Let us take a look at this sensitive issue in greater detail.
What is an employment contract?
So, we will start by defining the source of this issue. Essentially, employment contracts can be best described as legally binding agreements between employers and employees that precisely define terms of employment and the responsibilities all parties have toward each other during that employment period.
To fulfill that important purpose, the well-put-together employment contract needs to address a lot of different topics like:
  • Parties involved in the agreement
  • Scope of employment and job duties
  • Compensation the employees receive
  • Termination conditions
  • Performance expectations
  • Benefits, incentives, and premiums
  • Dispute resolution
  • on-disclosure agreements
  • Employment absence
Of course, these are only the general terms that broadly apply to all positions and industries. Depending on these factors the employer may decide to add other more industry-related stipulations and clauses. Some of the most popular optional clauses include the likes of terms of confidentiality, non-competition, and non-solicitation. Of course, since all these clauses are incredibly sensitive they are usually composed by professional employment contract lawyers. Even though this is not legally required, professional legal counsel is definitely advised especially taking into consideration that employment agreements need to be presented in written form to be legally binding.
How do employment agreements influence your company?
When we take into consideration everything we said above it is easy to get the impression of employment contracts as by-the-numbers, matter-of-factly, and mostly procedural. Still, this document, as mundane as it may look at first glance, has a tremendous influence on all facets of your company. Here are a few most important examples.
Providing a higher level of job security
This job security applies both to workers as well as business owners. By outlining the agreement time frame and other important clauses regarding the employee's status in the organization, legally binding employment contracts introduce a great level of certainty and allow all parties covered in an agreement to face work-related challenges with a greater level of confidence. The fewer things are left uncertain the less reason for all figures in the company to be worried about.
A platform for dispute resolution
The business environment inevitably provokes a lot of different types of conflicts that need to be solved in a professional and impartial manner. No matter whether they are between employers and workers or between workplace peers, these conflicts can cause lasting damage and completely destroy the positive workplace culture you were trying to establish. Comprehensive and well-phrased employment agreements can go a long way in solving these problems with surgical precision.
Maintaining the corporate secrecy
Corporate issues that are not made legally binding can't be practiced in the workplace. Therefore, companies wanting to encourage some specific behaviors, or keep some sensitive corporate issues away from the public eye need to make these conditions a part of the formal agreement. Otherwise, the employees can’t be expected to be aware of these requirements, let alone practice the behaviors that protect the corporate interests. Written agreements make these agreements formal.
Regulating staff leave
This is yet another instance where a lot of people might think that, by regulating the holidays, maternity leave, and other similar situations, employment agreements strictly protect the employees' rights. Of course, this is not the case. Much like in the example of job security, defining the staff leave conditions does not only protect the employer from the abuse of these rights but also allows them to make plans for situations when the employees will be off work for a previously agreed period of time.
Defining the roles, duties, and responsibilities
Last but not least, we would like to remind you that employment agreements are documents that basically outline the role of every single person within some organization. Without this clearly defined and mutually agreed-on tool, all responsibilities, roles, duties, and communication channels would have to be constantly reaffirmed and realigned which would destroy any semblance of productivity. That makes written employment contracts one of the most critical corporate tools.
We hope this short breakdown helped you to get a clearer picture of the employment contracts and how these critical documents influence all vital processes within some organizations. Most people tend to look at these documents as something they need to take off the table to ensure the legal compliance of their companies. However, if used properly this liability can actually be turned into a very powerful corporate tool. The considerations above give you the foundations for making this possible.
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