Under the current legal system, agreements are typically solidified and bound through a contract. Contracts provide a record of commitments and obligations between two or more parties to prevent conflict and manage risk. As a result, contracts play a vital role in a wide range of situations—including employment.

Naturally, having a legally binding contract is one of the most important aspects of being employed. An employment contract should provide clear and transparent details on the rights and responsibilities of both the worker and the company. Understanding the various types and elements of an employment contract can help you get a better picture of what to expect before you sign.

This infographic will provide a comprehensive guide to the unique characteristics of the various types of employment contracts, as well as reasons why you should read your employment contract before signing.

The Employment Contract: What Does It Cover?

An employment contract is an agreement between the worker and the company, establishing the rights and responsibilities of both parties within their working relationship. This contract covers the obligations and terms of employment, including:

• Compensation (through salaries, wages, or commissions)
• Days and hours the employee is expected to work
• Duration of employment (with the possibility of extension)
• Duties and tasks the employee will be expected to fulfill while employed
• All promised employee benefits such as health insurance, vacation time, paid leaves, etc.
• Ownership agreement, where the employer owns any work-related materials produced by the employee
• Confidentiality on company information, processes, and the like (can be included in a separate non-disclosure agreement)
• A non-compete agreement, which prohibits the employee from working for competitors following their exit from the company
• Terms for resignation or termination of employment

A written employee contract contains the details of the agreement in clearly defined terms. This allows both the worker and the employer to set their expectations for the prospective working relationship adequately. The details within the written contract are also specific enough to avoid misunderstandings or potential gaps in the agreement. 

Additionally, having a written employment contract provides you with a physical reference you can use to review the terms of your employment at any time. This is especially important if you suspect that your contract has been breached and will need to seek advice from a breach of contract lawyer.

Implied vs. Oral Contract

Not all contracts exist in written form, which brings us to two other types: implied and oral. Implied contracts and oral contracts have their own unique characteristics, making them more challenging to dispute legally.

Implied Contract

When an obligation between two or more parties is formed without a written contract, an implied contract is created. The law creates this obligation in the interest of fairness based on the conduct or circumstance of the parties involved. There are two kinds of implied contracts: implied-in-fact and implied-in-law.

• Implied-in-fact

Implied-in-fact contracts are formed by the circumstances and behavior of the parties involved. By acting as if in agreement, they create an obligation that can be legally binding. For example, an employee paying for company-related expenses within a project can reasonably expect that the company will reimburse them for these expenses.

To prove the existence of an implied-in-fact contract, you will need to show: an unambiguous offer, the unambiguous acceptance of the offer, mutual intent to be bound, and consideration. These elements are often established through actions, statements, policies, and practices that lead them to believe with reasonable cause that the offer would come to fruition.

• Implied-in-law

Meanwhile, an implied-in-law contract is a quasi-contract automatically established by the law in situations to prevent one party from being unjustly enriched at another party’s expense or actions, even if neither party intended to enter into an agreement. One example of this is a lawyer, regardless of being sought out or hired, needs to be compensated for their services.

Quasi-contracts can be difficult to prove since the same elements of an implied-in-fact contract—an unambiguous offer, the unambiguous acceptance of the offer, mutual intent to be bound, and consideration—need to be inferred from the situation.

In the context of employment, implied employment contracts are typically determined from a company’s past and present actions, statements, policies, and practices that would establish the existence of the offer and the subsequent agreement. 

For example, a new employee can refer to a record of the company’s past employment history, promotions, and annual reviews to determine an implied agreement that the said company would provide the new employee with the same. If the company fails to give the employee performance reviews and promotion opportunities, these records can be used to pursue legal actions against the breach of an implied contract.

However, it is up to the court of law to determine if implied contracts exist based on their surrounding circumstances. 

Oral Contract 

Oral contracts, on the other hand, are contracts that are outlined and agreed to via spoken communication without a written contract. Despite the lack of a written document, oral contracts are considered legally binding with the presence of the following elements: an offer, acceptance of the offer, and consideration.

Like implied contracts, proving the existence of oral contracts can be challenging. Presenting secondary documents that support the agreement and finding a witness who can testify to it being made are typically used to establish them.

In employment, oral contracts may be established when the HR of a company tells a new hire at their orientation that their position is permanent and they will receive a certain amount of money for their salary. Should a written contract not be provided, the employee can cite this exchange as proof that an oral agreement was made.

Each state may have a varying statute of limitation time periods when taking legal action involving oral contracts. These time periods are often shorter than those for written contracts, making breach of oral contracts more time-sensitive.

5 Reasons Why You Should Read Your Employment Contract

Before signing your employment contract, it is critical that you read and review its contents for the following reasons:

• To understand the terms

By reading the contract, you can fully understand everything the job entails: the scope of work, the state of the position, the compensation for the work you will perform, and other benefits you are entitled to.

• To read the fine print

Likewise, the contract contains certain clauses you must comply with, and the accompanying legal consequences should the terms be breached. Again, reading the fine print allows you to avoid agreeing to any terms you cannot comply with.

• To make sure everything stated in the oral agreement is covered

Your written contract will serve as a document that reinforces the oral agreement given during the recruitment and application process. Reading it can ensure that everything agreed upon has been adequately covered.

• To know your rights

Familiarizing yourself with the terms and conditions of your contract can help you protect your legal rights as an employee, especially in the event of a breach of contract.

• To know if you need to negotiate

A written contract may contain an offer or terms you do not entirely agree with. Once you’ve read and analyzed it, you can opt to negotiate and have it amended before signing.

Protect Your Rights with Contracts

Securing your employment through a contract is a vital part of engaging in work. Not only can you ensure you are fairly compensated, but you can also protect yourself if the contract is breached.

Employment contracts are formed through written, implied, and oral agreements. Knowing the differences between these types can help you better determine how secure your contract is, as well as the legal options you can consider for contract-related matters.

For legal assistance regarding contract disputes and other workplace issues, contact Shegerian & Associates today.