What Terms Should Be Included in an Employment Contract?

Two people reviewing an employment contract over coffee.

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Most employers require administrative, professional, and executive employees to sign an employment agreement or contract. The two terms mean essentially the same thing for this level of employee. While employment contracts are not required—except in specific cases—they can protect both the employer and employee.

Hourly employees typically do not have written contracts, but terms of employment might be spelled out in an employee handbook or other company policies and procedures. The agreement sets out the duties of the employee and employer and provides the employer with the opportunity to clarify the relationship, as well as including restrictive covenants to protect the employer. 

When writing a contract or agreement for an independent contractor the terms and conditions of employment will vary by the position but may still contain many of the following items.

Specific Contract Terms to Include

Although the specific terms or articles required in an employment contract vary by state and by type of employment, the following terms and conditions are usually included in these types of agreements.

  • Identification of the parties, including, in some cases, addresses and other identifiers. 
  • Effective Date of the agreement
  • The type of employment, full-time or part-time, salaried or hourly, professional, and the type of services provided by the employee
  • Duties of the employee, including maintenance of professional licenses, ethical actions
  • The Extent of Services, including hours and days of work
  • Benefits provided to the employee. These may be specific or the agreement may refer to an employee handbook or benefits listing for all employees
  • Termination, describing the circumstances under which either party may terminate the relationship, and the notice required
  • Notices. How notices of actions must be sent and received by each party. This section describes the process of serving notice to the parties, including by mail, email, or other, and when notice is assumed to have been received. 
  • Severability. This contract section states that one part of the contract is found to be invalid, the rest of the contract remains valid. 
  • Dispute process. In many contracts these days, the dispute process is spelled out, including whether there is a mandatory arbitration process instead of having disputes tried in a court. 
  • Applicable law. This section is a statement about the state in which the contract is effective. This is the state in which any disputes about the contract will be adjudicated (tried in court). 

Restrictive Covenants in Employment Contracts

Restrictive covenants may be elements in an employment agreement, or they may be separate agreements. These covenants are not found in all employment contracts but depend on the type of employment and level of employment (executive employees or corporate officers, for example). 

  • A non-compete agreement, restricting the employee's competition with the employer during or after termination
  • A nonsolicitation agreement, in which the employee agrees not to solicit employer's customers or other employees
  • A confidentiality agreement, in which the employee agrees to keep trade secrets, proprietary information private.

Contract Review by an Attorney

If you want to prepare an employment contract or you are asked to sign an employment contract, you should get an attorney to help you, or at least to review the contract. State laws are always changing, and you don't want to find out later that you missed an important clause or misread the contract.