If you are looking to open or expand a business, you’re going to need to hire workers. You may want to hire these workers full time and make them employees. To make someone an employee, you’ll need to know how to write a contract. At first glance, contract writing for small businesses may seem like no big deal.
But here’s the thing:
Writing contracts is hard. Even one vague term or typo can cause confusion and even a lawsuit. Things get even trickier when you take into consideration federal, state, and local laws. This post provides a step-by-step guide and tips on how to write an employment contract.
How to Write an Employment Contract
Follow these 3 simple steps:
- Consult an employment attorney
- Write the contract properly
- Sign the contract
Let’s see each one in detail:
1. Consult an employment attorney
A legal professional knows your state’s laws so that your contract is enforceable should you ever need to litigate a contract breach. You should write a legally binding contract that has consequences should either party fail to uphold their contractual obligations. You should only use legal clauses that both parties understand and agree on
An attorney will make recommendations to protect your business interests and suggest wording that’s transparent and leaves no room for misinterpretation.
2. Draft and write the contract
You probably have questions like these: How do you write up a contract? What are the 4 elements of a valid contract?
First, every contract should include these 4 essential sections: the offer, the parties involved, the legal agreement, and acceptance, by signature, of the contract’s contents.
Begin by dating the agreement and identifying the parties of the contract which in this case is the employer and employee and listing each party’s address. Spell out the exact period for when the agreement begins and ends. If you don’t have a set period of time, indicate that the agreement is valid until employment ends.
Next, each party’s rights and obligations should be detailed. For instance, be specific about the employee’s title and position, duties, compensation and how it’s paid, and benefits based on employer policies.
It is advisable to attach a copy of the employee’s job description to the employment contract. Note whether you conduct annual performance reviews and when the employee should expect the first one.
Then, include a detailed section relating to probation periods, contract termination and dispute resolution. In this section be very specific relating to your expectations as an employer. It should be written in such a way that there is no doubt as to what happens during any of these events.
Some employers include non-compete, intellectual property, non-disclosure, and confidentiality clauses to protect information owned by their companies. Additionally, employers can specify other employment policies an employee must adhere to such as sexual harassment or racial discrimination.
3. Sign the contract
When signing the contract, it’s up to you whether you want a witness for each party to be present and sign the document. Some employers include witnesses to validate whether an employer and employee were mentally competent when executing the document. However, a witness’s signature isn’t required to make the legal document valid.
The signature area should include the full names of the employer or representative for the company and the employee and signature and datelines that both parties complete when signing the document.
For your convenience, here’s an example of a typical employment contract template to give you an idea of what one looks like.
Five Tips to Write a Solid Employment Contract
As we mentioned earlier, contract writing for small businesses can be complex. But following these 5 simple tips help you write a clear and legal contract.
1. Get it in writing
Oral contracts can be legal and valid in certain circumstances. But you should always try to get your contracts (and the employee’s acceptance of said contract) in writing. This makes the terms clear to you, the employee, and any outside party that steps in to resolve disputes or handles lawsuits.
2. Use precise and clear language
Vague or ambiguous terms in a contract can cause confusion between the employee and you. They can be used against you if the employee has a good lawyer. Your employee should understand exactly what you mean by each provision of the contract. You also have to be careful with your use of adverbs and modifiers (“quickly”, “knowingly”, etc.).
Take the following phrase as an example: “The employee must quickly read and respond to work schedules when they are released”. This provision makes it clear that they have to read the schedules quickly. But it leaves it open to interpretation on whether or not the employee also has to respond quickly.
Now let’s look at a better phrase:
“The employee must quickly read and quickly respond to work schedules when they are released”. This makes it clear that quickly applies to both “read” and “respond”. This may seem nitpicky, but it makes a big difference in a contract term.
3. Define important terms and parties
At the beginning of most business contracts, the writer will often define certain words. These are words that will appear in the contract many times.
Let’s look at another example:
“The Employee must work 40 hours per week”.
It seems pretty clear-cut, but who exactly is “Employee” referring to? Most businesses have more than one employee. That’s why it’s a good idea to define “Employee” as applying to the person accepting the contract. You can also use the person’s name in the place of “Employee” to make it even more clear who the contract applies to. Define also terms like “Benefits” or “Compensation”. This is to show what exactly they mean in the contract.
4. Write numbers with numerals and words
This may seem unnecessary, but it is actually a great way to cover your bases. When you write a lot of contracts it can be very easy to misplace a number or a comma, which can have disastrous results. If you have the number written out in words as well, you protect yourself from little typos that completely change the numbers in your contract.
5. Avoid phrases that can have legal significance
There are some words that may seem straightforward to most people. Yet, they can have a different meaning and context in a legal document. Calling someone an agent may seem like a simple designation, but, under the law, it changes how they can deal with potential clients.
Make sure that if you use any of these phrases, you know their legal significance, or you could say something in the contract you don’t mean. For a list of some of these terms and their legal significance, check out this glossary for business owners.
Contract Resources For Business Owners
Contracts are a complicated subject, and it’s impossible to cover everything in this article. That’s why we’re providing you with this database from findlaw.com. Here you can find relevant state laws, example contract forms, and more.
We hope this article sheds some light on the importance of how to write a contract. If you follow the instructions outlined above and the five tips described, you should be well on your way to writing contracts that won’t end in a lawsuit.
And by the way, if someone ever does sue you, check out this post: