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Why are employment contracts a good idea for your business?

Employee contracts aren't the norm in many professions -- and you may not have given them much thought if your company is still very young. However, as your business grows, it's often wise to start using them.

What a good contract does

Not all employment contracts are written alike. However, any employment contract should do two important things:

  1. It should tell your employee exactly what you require from him or her in terms of the job.
  2. It should explain exactly what you will do in return to compensate your employee for the work.

The more clearly the explanations are made, the easier it is to avoid misunderstandings. Therefore, a lot of employment contracts include details like the length of the contract before either termination or renewal, discipline procedures and more. The possibilities for the number of terms included in any given employment contract are virtually endless.

What a contract changes

The biggest thing that an employment contract changes is the relationship between the employer and the employee.

Prior to the contract, the employee is likely "at will." That means that he or she can quit at any time -- and can be fired for any cause that isn't illegal. Once the contract is in place, however, that generally changes. Neither the employer nor the employee can end the relationship easily. They have a contract to uphold!

From an employer's perspective, that's actually the main benefit of having an employee under contract. You don't have to worry about a valuable employee suddenly walking out in the middle of a project for some other opportunity -- unless there's some way to do it under the terms of the contract. Employment contracts also make jobs more attractive to good employees. They offer a measure of security that can be a very powerful incentive for employees to accept a position.

You can also use a contract to keep ex-employees from going into direct competition with you or stealing your clients after they've left. You can also use them to enforce the standards of behavior you expect employees to adhere to through morality clauses and the like.

If you're still not sure what's right for your company, consider exploring the different possibilities an employment contract can offer a little further.

Source: FindLaw, "Pros and Cons of Written Employee Contracts," accessed May 17, 2018

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