How Does an Employment Contract Work?

Employment contracts are written terms and agreements that explain the expectations and responsibilities between the employer and employee. Although an employment contract is not legally required for all companies, those that do require contracts also have certain responsibilities and must adhere to certain provisions in order for the contract to be binding.

Before signing an employment contract

The employee must be of legal age for the employment contract to be legally binding. Many employers will also require you to read various attachments or documents that are part of the contract such as employee guides or handbooks. Look for words like or similar to "attached hereto and incorporated by reference within". Once a person has signed an employment contract, it automatically means that he or she has fully read and agreed to the conditions that are stated within. If possible, it is wise to get legal advice when going over the contract, especially if something is unclear.

Company ownership clauses and agreements

Another reason why it is important to thoroughly read the employment contract is because an employer may have listed owner rights.

• Shop rights mean that any ideas or developments produced by an employee will belong to the company or employer.


• Work-for-hire agreements are understood that a person may not be an actual employee of the company. However, the person has ownership of his or her work that is provided. Examples of this include freelance workers or independent contractors.


• Non-disclosure agreements (NDA) means that employees or independent contractors are not allowed to discuss confidential information about a company or employer. This agreement is also legally binding once a person is no longer with the company.


• Non-compete agreements prohibit an employee from working for the company or employer's competitor.

It is important to understand the entire contract and requirements before you sign the document. Failure to adhere to the contract can result in immediate termination for breach of contract.