What All Does an Employment Contract Cover

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Despite its seeming complexity and its importance to you, your "Employment Contract" will cover only a relatively few matters:

  1. Duration of the Contract
  2. Your Duties
  3. Getting Rid of You

We'll look at all of these in relation to your self-interest. What would you prefer? And what is the employer trying to accomplish?

As you negotiate a formal employment contract, bear this happy thought in mind: Virtually all experts agree that such contracts benefit employees more than employers. You gain more in job security, compensation, and bargaining clout if and when the relationship goes sour, than the employer does in terms of actually preventing you from leaving at an inopportune time and taking your competitively-significant skills elsewhere.

Duration of the Contract

When a new employee is brought in under contract, the agreement is likely to run only two or three years. Key employees already on payroll...and sought- after superstars from outside...are usually tied down for three to five years. The more sure the employer is that he wants you, the longer the commitment he proposes.

Automatic renewal can extend the contract indefinitely:

"This contract shall be extended for additional three-year periods, unless either party notifies the other in writing prior to one year from the end of any such three-year renewal."

Very nice protection if you can get it. A more common provision would be an automatic one-year renewal. Consider, however, how favorably an 18-month termination provision may compare with whatever automatic renewal you're offered.

Your Duties

The statement of duties is extremely important, because it opens the door to the two main ways employers try to get out of their commitment. They either:
  1. force you to leave by changing your duties, or
  2. fire you, claiming you haven't performed them.
It's tough to defend against these twin assaults. But you've got to try. Can you accept a drastic demotion or an onerous relocation? Can you perform to the full extent of a vague and arbitrary standard? If not, keep a sharp eye on the language that goes into your contract.

Nail down specifics. Title? Location? Reporting to whom? With what operations reporting to you? Are you a member of the Management Committee? The Board of Directors? Try to get a statement that you can't be given a lesser title, lower-level reporting relationship, less responsibility, or relocation away from corporate headquarters.

Watch out for these phrases: "such duties as may be assigned," and "full time and best efforts." If you agree to perform whatever duties you're assigned, stand by for some pretty demeaning ones when your boss wants to get rid of you. Try for a modifying phrase such as "of comparable or higher responsibility and status." And if you pledge your "full time and best efforts," look for an attempt to break your contract if you try to do any outside consulting, writing, or speaking in the evening or on weekends. A better promise would be not to do any consulting or other work for any competitor of your employer during non business hours while on the employer's payroll.

Getting Rid of You

You'd like to tie up your employer so he can only fire you "for cause," as the lawyers say. And very good cause, such as committing a felony against the company. Otherwise, you'd like to force him to employ you to the end of your contract, or at least pay whatever severance is specified.

Your boss, on the other hand, would rather employ you "at will" so he can dispense with you at any time, without a reason, and with no financial consequences, just as he could if there were no contract (although these days age- discrimination legislation and sympathetic courts may provide some protection, even without a written contract).

In the end, you'll get a provision that says you can only be fired "for cause" But you'll have a tough time getting the statement of what constitutes adequate "cause" worded narrowly enough to give you any real protection. You'll want a lawyer to ponder the exact language. But here are a couple particularly troublesome "cause" statements that you should beware of:

" Violations of law and company policy Will traffic violations suffice? Taking home pencils and pads to do office work at night and on weekends? Failure to get your expense report in on time? Failing to prevent your teenage son from taking the company car for a spin? Failing to obey any order of a superior officer, no matter how frivolous or demeaning?

"Failure to perform duties as assigned from time to time by the employer." Which duties? Newly-assigned, frivolous and demeaning? Requiring relocation to the island of Elba? Failure to meet unrealistic goals, budgets, and forecasts?

Obviously you should try to get permissible firing "for cause" as clearly worded and as limited in scope as possible. "Illegality" might be tagged "except for misdemeanors not directed toward the employer." And, if possible, try to require "prior written warning" before you can be fired for "violation of company policy" or "poor performance." Might as well get a shot at correcting your deficiency.

And try to insist that your firing "for cause" be done in writing, and accompanied by a "written statement of the reasons" for firing. If the reasons are flimsy, the company may hate to put them in writing, and may either be less quick to fire, or more willing to pay reasonable severance.

Also insist on an "arbitration clause" providing that conflicts under the contract shall be settled by binding arbitration. Court calendars are backlogged for years and trials are prohibitively expensive...at least from your point of view. Quicker, cheaper justice helps you a lot more than it helps your employer.

And finally, try to get a clause continuing your company-provided medical and life insurance until you're employed full-time by your next employer. If you fail, federal law [COBRA] may give you the right to continue your medical insurance for 18 months, but you will pay 102% of your former employer's cost.
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