An employment contract is the foundation of the employer-employee relationship. A well-drafted contract protects both parties, sets clear expectations, and prevents costly disputes. Whether you're hiring your first employee or your thousandth, these ten essential clauses should be in every employment contract.
Job title, duties, and reporting structure form the first essential element. Clearly define the employee's role, primary responsibilities, and who they report to. Include a clause allowing reasonable modification of duties as business needs evolve. This prevents disputes about job expectations and provides a basis for performance evaluations.
Compensation and benefits must be thoroughly detailed. Include the base salary or hourly rate, pay frequency, overtime eligibility, bonus structures and criteria, health insurance and retirement plan details, paid time off allowances, and any other benefits. Be specific about when and how bonuses are earned to avoid ambiguity.
Work schedule and location should be clearly specified, especially in the era of remote and hybrid work. Define standard working hours, whether remote work is permitted, and any flexibility in scheduling. If the position requires travel, specify the expected frequency and reimbursement policies.
At-will employment status (if applicable) should be clearly stated. Most employment in the United States is at-will, meaning either party can terminate the relationship at any time for any legal reason. If you're offering something different—like employment for a specific term—make that explicit. Some states have specific requirements for at-will disclaimers.
Confidentiality and intellectual property clauses protect your business's most valuable assets. The confidentiality provision should define what information is confidential and the employee's obligations to protect it. The IP clause should specify that inventions, creative works, and other IP created during employment belong to the company. Include a disclosure obligation for any inventions related to the company's business.
Non-compete and non-solicitation clauses restrict what employees can do after leaving. Non-competes prevent working for competitors, while non-solicitation clauses prevent poaching clients or employees. These must be reasonable in scope, duration, and geography to be enforceable—consult with an employment attorney to ensure compliance with your state's laws.
Termination provisions should cover voluntary resignation notice requirements, grounds for termination with cause, severance pay policies, and the process for returning company property. Address what happens to unvested benefits and accrued time off upon termination. These provisions reduce uncertainty and potential legal disputes when employment ends.
A dispute resolution clause specifying mediation or arbitration can save both parties significant time and money compared to litigation. Many employers include mandatory arbitration clauses, though these are subject to evolving legal requirements. Whatever mechanism you choose, ensure it's fair to both parties and complies with applicable law.
