Employment Contract

Posted in Human Resource Terms, Total Reads: 474

Definition: Employment Contract

Employment Contract is a kind of a contract used in labor law for the rights and responsibilities between parties in a bargain. It has risen out of the old master-slave law. But now the relation denoted economic dependence and social subordination. An Employment Contract means the same as Contract of service. This creates a line between a person who is employed and a person who is self-employed.

This purpose of this line is to attribute rights to people who are employed like minimum wage, sick leave, fair dismissal, right to union etc. This is due to the assumption that self-employed people can generally look after themselves.

Types of Employment Contract

1. Permanent Full time: This is for the employees who do not have any end date to his/her employment. They will be meeting the requirements full time.

2. Permanent Part time: These people also do not have any end date to his/her employment. However they will not be meeting the requirements full time.

3. Fixed Period: These people has a fixed term or pre-arranged end date to their employment. Their contract automatically expires on the end date mentioned in the contract.

Types of clauses in a contract:

1. Non-compete Clause: It abstains the employees form working for the direct competitors of the company. It generally lasts for a certain amount of time post resignation.

2. Non solicitation: It abstains the employees from encouraging other employees to move to another company. This also lasts for a certain period of time post termination.

3. Confidentiality: It keeps the confidential work information hidden. It abstains the employee to reveal the confidential information of the company to any other company post termination. This clause also includes that the employee cannot reveal the marketing strategy of the company to any other company post termination. These things can only be revealed in public after express permission from the company.

Some constituents of an employment contract:

• Job tittle

• Role and responsibility

• Location of employment

• Compensation

• Probationary period, if any

• Notice period

• Possible reasons of terminations

• Non-disclosure agreements, if any

• Ownership agreement, if any

• Method of resolution in case of dispute etc.



• In case of any issues that raises in the future regarding terms mentioned in the contract, the document acts as evidence. This helps in quicker dispute resolution

• It is not possible to fire employees without following the terms laid in the contract. This provides job security to the employees.

• Controlling employee’s ability to leave the organization before a stipulated time.

Example: Signing a mandatory employment term before providing the employee with an expensive training is customary. This ensures that the cost of the training is not wasted.

• Many business or organizations have trade secrets or other confidential information. Such orgnizations include the confidentiality terms in their employment contracts. This prevent employees from divulging these secrets to others or from using them for their personal benefits.

• Although highly criticised and rarely used, some contracts also specify performance standards. If not met, it is easier to terminate such employees.


• It is tough to change the terms of a contract. So it limits the business flexibility.

Example: 6 months after signing a 2year contract with an employee, the employer realizes he does not need the services of the employee any more. But since the inintial agreement was of 2 years, the term cannot be annulled without both the parties, i.e. the employee and employer agreeing. This can be a cumbersome and long process.


Hence, this concludes the definition of Employment Contract along with its overview.


Browse the definition and meaning of more terms similar to Employment Contract. The Management Dictionary covers over 7000 business concepts from 6 categories.

Search & Explore : Management Dictionary

Share this Page on: