Navigating the Fine Print: A Guide for Employees to Understanding Basic Employment Contracts

When you receive an offer for a new job, you will normally be given an employment contract by your employer for you to sign and return. Do you ever look at the contract in detail?

The employment contract is the most important document you will have to sign for your job, yet most people will accept whatever employment contract terms are given by the employer, no matter how unfair they are.

You may or may not be able to negotiate your employment contract depending on the relative bargaining powers of the parties. If you are a new graduate that has just received an offer from Goldman Sachs, it is unlikely that you will have any room to negotiate your terms. On the contrary, if you are a leader in your field and your new employer is desperate for your service, it is more likely that your new employer will cater to your demands in employment contract negotiation.

This is a guide for employees on the terms under a basic employment contract and gives advice on what to look out for when negotiating with employers. You can also download the basic employment agreement template to see the key terms you may wish to negotiate with your employer. If you are looking for job opportunities, you may want to try job websites such as Jooble.

A. What is an Employment Contract? 

An employment contract is defined as a legally binding document that dictates what you are entitled to as an employee as well as what your obligations are towards the company. It binds both you and your employer with the terms and conditions stated in the contract and an updated contract should be issued shall there be any changes in terms.

Having an employment contract is vital for maintaining a clear and transparent employment relationship as it clearly lays out your employers’ expectations and the rights entitled by you. Although employers do not have legal obligations in issuing an employment contract in some jurisdictions, it is common and general practice to have a signed employment contract provided by the employer.  The employment contract is to be used as the legal basis for determination should the parties be caught in employment disputes in the future. 

As such, it is of vital importance for the employee to read the employment contract thoroughly before signing. However, it is common for some employees not to read their employment contracts as they are seen as a given and cannot be changed. This will inevitably lead to knowledge gaps in regards to the entitled rights and benefits of the employees. Another factor is the complexity of wordings and terms used in drafting employment contracts which some employees might not be competent enough to understand.  Furthermore, as the contract is between yourself in the capacity of an employee and a company, you may feel as if there is a power imbalance and that you may not want to raise any issues prior to signing the employment contract.

B. What is commonly included in an employment contract?

Employment contracts generally set out the relationship between the employer and the employee. As such, it contains clauses such as:

• Details about your position, duties, and obligations;
• Employment period;
• Working hours;
• Wages and remuneration package;
• Details about leave you are entitled to;
• Details about probational period;
• Confidentiality agreement; and
• Restrictive covenants.

Often employers tend to use complex and professional terms while drafting employment contracts and you might not fully understand the context of the contract. You should raise any questions directly with the Human Resource department of your employer and ensure that you are comfortable before signing. You may consider seeking legal advice if your employment contract is of sufficient value and you feel there is a serious power imbalance between you and your employer.

Another option is for you to compare your contract with the terms of the employment contract templates provided by DocPro as a reference:

C. What are the types of Employment Contracts?

Depending on your jurisdiction, there are different types of employment contracts. Generally, different employees have different employment contracts. The primary difference between the employment contracts is the enclosed terms which reflect the relationship between the two parties. Essentially, depending on your position, the nature of your employment, and the benefits you have, you will have a different contract.

So, do not be surprised if your full-time employment contract differs from your part-time employment contract. You should make sure the type of your contract is clearly stipulated in your employment contract so as to receive full protection from employment laws and to get the benefits you are entitled to.

Full-time employees and tenured employees are likely to have more benefits conferred to them, including healthcare and dental. Some benefits may also be legally required for full-time employees, such as paid sick leave and maternity leave.

For interns and part-time employees, they would have fewer benefits offered to them than full-time and tenured employees. This is mainly because part-time employees do not work a certain number of hours in order to qualify for such benefits. As for interns, as the nature of their employment is mainly to gain working experience, the main benefit is the working experience itself. Some internships are paid and some are unpaid - if the internship is unpaid, you may have a clause in your contract which waives your right to receive remuneration. Depending on your jurisdiction, you may also be asked to sign a declaration in front of a notary, officially waiving your right to remuneration.

D. Are you an Employee or an Independent Contractor?

Contract workers have a significantly different contract from that of other employees. This is because contract workers are not employees per se. With contract workers, the primary goal of the contract is to complete a certain task in order to receive payment - once the task has been completed, the employment is also concluded. As such, they are not entitled to any benefits, leave, retirement fund, notice period or other legal protections. Furthermore, contract workers are not considered employees of the company as they normally work for a short period of time in order to perform ancillary tasks.

For some functions (such as sales) that are commission-based, it is common for employers to hire even full-time staff as “independent contractors”. In any case, some employers do not wish to give their staff the status of “employees” because (i) they want to cheat their workers from benefits; or (ii) they do not have internal headcounts to hire employees. Thus it is of fundamental importance to determine what your employment status is under the contract, and raise any queries with Human Resources if required.

E. Is an Oral Employment Contract Valid?

It is possible for you and your employer to form a contract and agree to its term verbally before commencing your employment – this is also known as an oral employment contract. Although your employer and you might have talked through some details about the terms and conditions of your anticipated position, none of this information has been documented in a formal agreement and signed by either of the parties.

In most jurisdictions, verbal contracts are valid if evidence can be shown that a contract was formed and all the essential elements for the formation of a contract if evidenced. The essential elements for a valid contract are offer, acceptance, consideration, certainty, capacity, legality, and parties’ legal intention.

Although you can enter into can be oral, it doesn’t mean you should. While some oral contracts are valid, written employment contracts are highly preferred because oral contracts can be hard to prove when disputes arise. Having everything in writing will better guarantee your rights as an employee. After you make the oral contract and agree to it, you should ask for a copy of the contract in writing.

Aside from the contracts themselves, it is also possible to orally agree on terms that are not written in the contract. However, like the oral contract, it is advisable that after you orally agree on the terms, it is written down in order to ensure that what was agreed upon is properly documented.

F. What are non-disclosure agreements, non-compete agreements, and non-solicitation agreements?

Your employer might require you to sign a separate non-disclosure agreement (NDA) or a non-compete agreement in addition to your employment contract, where more often than not are they incorporated as clauses in your employment contract. They are also known as restrictive clauses as they restrict your rights.

It might seem counter-intuitive to sign documents containing such restrictive covenants that restrict your right, they are essential to certain businesses with confidential information to protect. Businesses generally have confidential information, trade secret or client information which employers wish to (or are required under law to) protect with the best of their endeavours. By signing such agreements or employment contracts with these clauses being incorporated, you will be restricted from exposing confidential information of the company during your period of employment and/or when working for a competitor after you left the company. Your employer can thus entrust you with the information required to perform your duties. 

1. What are the common types of such restrictive clauses?

Non-compete agreements are usually introduced when you work in a relatively competitive industry such as education or sales. These agreements prevent you from seeking employment from the company’s competitors or for business with similar nature to the company you are working for a certain period of time after your contract is terminated. This is to protect the company from losing business and to prevent you from taking the company’s business elsewhere. 

Non-solicitation agreements are introduced when you work with a large client base. These agreements restrict you from soliciting or contacting clients of your company for a certain period of time after your employment is concluded. Like the above agreements, these protect the company’s economic interests.

Non-poaching clauses are introduced to prevent you from poaching your former colleagues for a period of time after you have terminated your employment contract with the company. This is usually included to protect the stability of the workforce and human resources of a company.

General confidentiality clauses prevent you from disclosing confidential information, proprietary information, and trade secrets such as operational details, and clients list to external parties.

2. Are restrictive clauses legally binding on me?

Restrictive clauses are generally binding on you once you have signed any documents containing them. However, they might be unenforceable in the legal sense if they are drafted too wide and too harsh. Hence it is of most importance for you to read your employment contract or any similar documents and make sure you understand each and every term before signing. If you believe the restrictive clauses are unreasonable, you might wish to clarify with your employer or seek legal advice to verify your stance.

Regarding the validity and enforceability of different clauses, they are determined on a case-by-case basis as employment rights vary from jurisdiction to jurisdiction.

• The non-compete clause precludes you from working for a competitor for a period of time after employment. Its validity varies by jurisdiction. You should make sure the agreement is clear as to the period in which you should not work, the location and industry in which the agreement is valid, and how you will be compensated for adhering to the agreement.
• Non-solicitation clause precludes you from soliciting customers or employees of the company after employment. Its validity and status are similar to those of a non-compete clause. Thus, similarly, you should ensure that if you sign one, it is clearly written and not overly broad and thus severely restricting your rights. In addition, general confidentiality agreements are generally ruled unenforceable if confidential information is restricted to be disclosed for a period of more than 12 months after employees’ termination.

Before seeking formal legal advice, you may wish to refer to DocPro’s employment agreement templates containing such restrictive clauses as references:

• For an agreement drafted in favour of the employer, please refer to:

https://docpro.com/doc1342/non-compete-and-non-solicitation-agreement-for-employment-one-way-unilateral-employer

• For an agreement drafted in favour of the employee, please refer to:

https://docpro.com/doc1344/non-compete-and-non-solicitation-agreement-for-employment-one-way-unilateral-employee-1

• For an agreement drafted neutrally, please refer to:

https://docpro.com/doc1341/non-compete-and-non-solicitation-agreement-for-employment-one-way-unilateral-neutral

G. What is a Notice Period?

The notice period is the time period between (1) the time when you submit your termination notice, or (2) you were notified to be dismissed and the actual end of your last working day. It starts when you submit a formal resignation letter indicating the intention to terminate the employment relationship, or when you were given a notice of termination of employment in any form.

It is essential for you to read the termination clause in your employment contract and take note of all relevant details such as the required length of the notice period, the designated way to give notice, benefits, and entitlements during your notice period, etc. In addition, some contracts will allow for payment in lieu of notice, meaning that instead of handing in your resignation notice a certain time before your resignation, you may forgo pay for the final period of your work. All such procedures and details about the notice period would be binding on you once you have signed the contract.  

We also have some resignation letters templates for your reference:

H. What is Garden Leave and why is it important?

If you are working in a competitive industry where you come across confidential information on a daily basis, or if you are a senior employee with access to key clients or trade secrets of the company, you might notice a term named “Garden Leave Clause” being incorporated in your employment contract.

Garden Leave clauses require are invoked when employees are asked to stop performing their job duties and are restricted from the company’s office premises while their employment contract continues. It is usually enforced after an employee has issued his/her notice of resignation and such employees would be entitled to all standard pay and entitlements as usual even if they are being put on garden leave. However, being put on Garden Leave is different from going on a vacation – you still have to standby should your employer have any tasks for you to complete or matters to hand over. Nevertheless, employees are rarely given any actual job duties in a practical sense.

This is commonly done by employers to protect their business interests from any potential conduct by former employees. An employee might harm a company’s business and reputation in many ways, for example, by taking away information and clients list from the company, deliberately performing in an unpleasant way while executing their duties, or even sabotaging the company with a deliberate security breach. Hence, companies tend to put employees on Garden Leave during their notice period to keep them away from the industry and reduce the risks of any potential business damages.

It is important for you to check whether there is a Garden Leave clause being incorporated in the employment contract before you sign as an employee cannot put you on Garden Leave in the absence of such clause. Otherwise, your employer has to obtain your prior consent before requesting you to go on a Garden Leave.

I. Breach of Employment Contract and How to Resolve Disputes?

Where there is a breach of an employment contract by either party, it would be unusual for the other party to go straight to court to make a claim. In case of breach by the employee, the employer may institute certain disciplinary proceedings under the employee's handbook, or in case of serious breach or misconduct, the employer may resort to terminating the employee. 

There appears to be less recourse for the employee in case of breach of employment contract by the employer. The first step is always to file a complaint with the Human Resources ("HR") department. However, if little or no action is taken by HR, you may wish to include a clause in your employment contract that any dispute will be settled by voluntary mediation.  Should mediation prove unsuccessful the parties may then submit to the jurisdiction of the local courts or labour tribunals.

Another alternate dispute resolution method is for the employer and employee to agree to arbitrate. The parties can agree to, as a condition of employment or continued employment, enter into an Arbitration Agreement to avoid the burdens and delays associated with court actions. For a template of an employment arbitration agreement, please see the below:

https://docpro.com/doc1742/arbitration-agreement-employment-mutual-arbitration

J. Termination of Employment Contract

The employment contract template provided by the employer usually permits the employer to terminate the contract for a wide variety of reasons, including but not limited to:

(a)    breach of the employment contract by the Employee.

(b)    at any time during the probation period of the Employee.

(c)    death or incapacitation of the Employee.

(d)    conviction of the employee of a criminal offence.

(e)    the bankruptcy of the Employee; 

(f)    any gross misconduct of the Employee affecting the business of the Company.

As an employee, you may want to negotiate with the employer to limit its immediate right to terminate the employment contract to protect your job security. In particular, the employer is generally not liable to pay the employee any sum payable to the employee after the date of termination.

K. Conclusion

All-in-all, employment contracts may seem like complicated documents, but they can be simple to understand and navigate after doing ample research. Be sure to go through the contract with your employer term by term, clarifying any misunderstandings and confusing terms. Also, make sure that any terms you verbally agreed upon are added to the contract in order to ensure your rights are protected!

Frequently Asked Questions (FAQ):

1. What are the things to be aware of before signing employment contracts?

Fran M Haasch, the Founding Attorney of Fran Haasch Law Group, is of the opinion that the employee should pay attention to the scope of duties prescribed in the contract to make sure that they are consistent with the ones on job posting in order to avoid unfair practices on the part of the employer. Employers may also include certain unfavourable terms and conditions, like forced arbitration clauses that prevent the employee from suing the employer for misconduct of various types and non-compete clauses that limit the employee from working for other companies. [1] James Palestini, a criminal lawyer and Founder of Palestini Law also indicates that the expectations, job duties and work locations set out in the contract are suitable for the employee.

2. Can an employment contract exist if there is nothing in writing?

Yes, an oral / implied  employment contract is in place between the employer and employee.[2]

3. What should you include regarding overtime work in an employment contract?

Ben Michael pointed out that the laws with respect to the overtime work is generally well specified in the laws of many jurisdictions. He advises the employee to refer to the labour law about overtime work in their jurisdictions. [3]

4. What happens if I breach my employment contract?

On many occasions, the employment contract may be breached unintentionally.As Riley Beam notes, if the employee's breach of employment contract is minor, the employer will usually let it go, considering the costs of suing, and serve him or her with a notice of infringement. However, in more serious cases, a company may resort to formal legal action against an employee. [4]

[1]Ben Michael, Attorney, Michael & Associates <https://zealousadvocate.com/>

[2]Martin Gasparian, Owner and Attorney at Maison Law, California Personal Injury Lawyer | Maison Law 

[3]Ben Michael, Attorney, Michael & Associates <https://zealousadvocate.com/>

[4]Riley Beam, Managing Attorney, Douglas R. Beam, P.A. <https://www.dougbeam.com>

Please note that this is a guide on the general position of minority shareholder rights under common law. This does not constitute legal advice. As each jurisdiction may be different, you may want to speak to your local lawyer.