Why Have Employment Contracts? Here’s 10 Reasons
Tiaan Dwyer | HR Specialist
January 14 2021
I always find it quite surprising to hear how few employers have entered into written contracts of employment with their employees and if they have, more often than not, these contracts of employment don’t cover them correctly legally, or is poorly drafted.
Not making use of the correct drafter employment agreements is particularly prevalent in many startups and small businesses where there is a relaxed atmosphere where business owners assume that their dealings with employees can be handled verbally.
A well thought out and documented employment contract is beneficial to both the employee and the employer. A written agreement or contract is a legal document that highlights and covers the rights and obligations of each party, protects the job security of the employee, and protects the employer from risks and legal action.
Here are ten reasons why employment contracts are a must-have in any business.
Understanding of Duties and Responsibilities (Employee and Employer)
A well-written employment contract will explain in detail the position and duties of the employee. This is beneficial to employees as it helps to have a legal document that mentions clear information about a job title, job description, duties, and responsibilities, etc.
This also works in favour of business owners (employers). Having a well written legal agreement that defines the standards expected of an employee means there can be no room for confusion. Also, If an employee is regularly underperforming and not meeting the agreement set out in their contract, you as the employer can have reason to take action.
Who Owns Or Can Take Credit for Inventions and Other Copyright Materials?
Some employees often have new ideas or will create or design something that will result in a positive return on investment for their employer. This creation can either be part of a worker’s regular job duties, and they figured out how to improve the system or change it for the better completely
By using and covering clauses in your contract that covers the exclusive ownership of, and all applicable rights to, any intellectual property someone creates as your employee, will save you a bunch of stress and financial pressures down the line.
Examples your business can take ownership of might include:
- Copyrights and usage rights for all written content and images.
- Patents based on original processes or designs.
- Trademarks for original names, symbols, and logos.
If your business handles sensitive client information, trade secrets, or other confidential information that you’ll be sharing with your new hire, or if they might be exposed to it, then it makes sense that you get a well-written contract created. Many businesses don’t want their proprietary information being released to the public, being shared with family or friends, shared on social media, to the media, or used for other purposes than the company’s one, and if it does, you can take legal action immediately to remedy the situation.
Use Of Technology
Clarify what is acceptable regarding the use of social media, email, internet, and other internal technology policies while using company property. Doing so reinforces the notion that your company treats the inappropriate use of technology seriously, and that transgressors of the related policies will be jeopardising their employment status with your company.
Compensation and Benefits
Regardless of whether an employee is working for you on a full time, part-time or casual basis, an employment contract helps to define agreed-upon compensation, leaving no room for miscommunication. The package should include the annual salary or hourly rate, overtime, information about raises, bonuses, or incentives, and how these may be obtained.
Also, explain what the benefits plan includes. Things like medical, retirement, etc and what percent the employer pays, and what percent the employee pays.
When it comes to workplace frustrations and issues, it’s often to do with money, so make sure to be as detailed as possible when discussing and writing a compensation overview.
Clear Protocols for Staff Leave and Sick Days
Throughout an employee’s tenure at your company, they will need to take different forms of leave from time to time, such as annual holidays, sick days, maternity, bereavement, or other emergency leave. Having this information set out in a contract means that the procedure for taking leave is always consistent for all staff. Don’t forget to mention what unpaid leave is, and what exactly this entails so there are no surprises or upset employees. Employees can also refer directly to their employment contract for guidance on this topic.
Restrictive agreements may be sections in an employment agreement, or they may be separate agreements completely. Examples can include:
- A non-compete agreement, restricting the employee’s competition with the employer during or after employment or termination
- A nonsolicitation agreement, in which the employee agrees not to solicit employer’s customers or other employees during or after employment or termination
Termination Clauses and Dispute Resolution
No contract is indefinite, but ideally, as business owners, we’d like to keep the valuable employees for the long run and weed out the bad ones.
Some common grounds for termination include the employee’s criminal conduct or breach of the employment agreement. Other grounds for termination can be added based on acts that are detrimental to the business, such as using company resources for your own benefits, stealing data and sharing it, etc. Explain what constitutes a warning, and what constitutes immediate dismissal. But an employment contract should clearly lay out all the possible reasons for termination and dispute resolution.
A Change in Working Conditions
It’s not uncommon when a small business does well for a season, and the next they don’t. This type of uncertainty can also mean a shift in strategy and can involve significant changes to job roles. Most employees will embrace this change if they are passionate about their jobs and want to see the company stay afloat. However, some will be resistant to change. A well-written employment contract clears up any ambiguity regarding changes to job roles. That’s not to say you’ll avoid any resistance when it comes to reassigning staff to different duties. If there was no written employment contract laying out the expectations that roles may be changed and the possibility was never discussed, you could find yourself at the expensive end of wrongful dismissal damages.
Conflict of interest
A conflict of interest statement in an employment agreement provides an overview for employees that applies both during their working hours and their off-hours.
A conflict of interest statement contains the following guidelines and rules:
- Employees will not perform work for other employers, or work on their own personal or commercial projects, during business hours.
- Employees will not take another job, whether casually, part-time or full-time, with a business that competes with the employer.
- Employees will inform the employer if a situation develops where the employee’s personal interests could conflict with the best interests of the employer.
If there is something I want you to know about me right away, it’s that I have a passion for supporting business owners. I believe in the future of South Africa and that there are so many opportunities out there to be successful and to make a change to our economy.
I want to be part of that change by providing businesses with core HR and Labour Solutions that will not only result in legislative compliance but actually positively impact their bottom line.
Over the years I have gained specialist HR experience working in various sectors within the Small, Medium, and Micro Enterprise sector. As a business owner myself, I can relate well to businesses and what their needs are.