Pros and Cons of Employment Agreements

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An employment agreement is a contract formed between an employee and employer, which governs the terms of employment. When both parties have signed the employment agreement, the contract becomes binding and legally enforceable in court. Most employment agreements al the employer to end the employee at any time and for any reason supplied the reason is not illegal, unconscionable, and/or against public policy. Employees can resign from their position at any time and for any reason.

The employment agreement may have provisions like the employee’s salary, how often they will be paid, and the number of hours they are expected to work each week. If an employer refuses to pay an employee the agreed-upon amount or repeatedly does not pay an employee at the end of each pay period, then the employee has the legal right to sue their employer for breach of contract.

Not every job has an employment agreement, but it is useful to specifically clarify each parties’ responsibilities which can enable any disputes to be resolved quickly. Like all contracts, these agreements can have both pros and cons, so it is wise to have a legal contract consultation from an experienced attorney. Sometimes the pros and cons benefit or disadvantage both parties, other times they benefit one party but disadvantage the other party.

Pros of an Employment Agreement

  • Clearly describes the employee’s position – this can make it clear what an employee’s duties are and what they are not.
  • Easy to resolve disputes – if one party does something that doesn’t meet the terms of employment, an agreement makes it easy to see if the issue was within the terms or not. Where disagreements continue and the issue goes to court, the employment agreement can be used to decide the outcome.
  • Establishes a favorable working relationship between the employer and the employee – this provides the employer with a clear set of goals and structure in the workplace, and the employee can prove job security and employment stability.
  • Dispute resolution clause – supplies a guideline on how to resolve employment-related disputes. 
  • Fringe benefits provisions – details any non-income-related benefits the employee is entitled to receive in addition to their salary like health insurance, pension benefits, life insurance, and/or dental insurance, etc. 
  • Non-disparagement clause – an employee will promise not to speak ill of an employer if fired, in exchange for a severance package and/or the same promise from the employer.
  • Restrictive covenants – when an employee leaves, they cannot set up a business in competition with the employer

Cons of an Employment Agreement

  • Inflexible restrictions of the employer-employee relationship – this can make it difficult to negotiate changes if, for example, you want to change roles or decrease hours, etc.
  • Inability to leave the job at once – if the employee chooses to quit the job, usually they need to keep working for a specified notice period or risk losing any remaining sick and annual leave payments.
  • Parties must act in an honest and fair manner in terms of their relationship – if either party breaches those terms, then there can be legal ramifications.
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