To be legally binding, an employment contract can be verbal or in writing.
If the contract is verbal, the existence of an agreement can be inferred by the fact that the employee readily performs work and the employer remunerates the employee.
A contract gives rise to obligations that are enforced or recognised by law.
4 necessary criteria for an employment contract
- There must be an agreement between the parties. This typically consists of an offer and acceptance of employment.
- Each party must provide consideration (i.e. promise something of value) in return for the obligations undertaken by the other.
- The parties must have intended to create a legal relationship.
- The agreement must be certain and complete. (An agreement is uncertain when it is either lacking an essential term, or where the parties have not reached a final agreement about the terms.)
Essential terms of an employment contract
It has been suggested that the only essential terms of an employment contract are:
- The terms identifying the parties.
- An agreement to serve.
- The basic remuneration of the employee.
Key terms of an employment contract
- Titles and duties of the position: It should be clear to the employee what position they have been employed to fulfil. The contract should specify the employee’s position title and the duties associated with their position. However, this must be balanced with ensuring that the position description contains some form of flexibility and allows the employer to direct the employee to perform other duties as may be required from time to time.
- Remuneration: This is the first thing that any employee will check and it is crucial that it is expressed correctly. Ideally, the entire remuneration package should be clearly set out in the contract, including non-monetary benefits such as tools of the trade (e.g. motor vehicle, mobile phone, etc.) and values to be agreed on.
- Commencement and expiry dates: It is important to keep a clear paper trail (by way of the employment contract) as to the commencement date and, in the instance of a fixed-term contract, an expiry date. An expiry date in a fixed-term contract will mean that the employment relationship ends at that time without the need for the employer to provide notice of termination.
- Termination of employment: The contract of employment should clearly set out how the contract can be ended (both by the employee and the employer) and the length of notice to be given. In relation to the employer’s ability to end the relationship, the clause should deal with serious misconduct (where termination will be instant and no notice is required to be given) and termination with notice provisions.
- Confidential information: Where employees will come into contact with sensitive information that is not in the public domain, we recommend including a confidentiality clause to prohibit employees from disseminating confidential information during and after employment.
- Hours of work: This is important if ordinary hours exceed 38 hours per week. Usually the provision should be made to permit you to require the employee to work such additional hours to the 38 as is reasonable, and to provide that compensation for this additional work is provided in the employee’s remuneration.
Remember that providing a job description during the commencement of an employment relationship is not enough. Ensure that you have a solid contract in place that governs the terms of the employment relationship.
As the employer, it is your obligation to clearly set out the employment conditions. If there is any dispute about the terms of the contract, it will be extremely difficult to prove what was agreed to without written evidence.