Everyone who takes a job has employment contracts - even if that contract is not in writing. For example, if you hire someone for a job and tell the employee that the job pays $8.00 an hour, you have just agreed to an $8.00 an hour employment contract. Under that contract, you now have to pay the employee $8.00 an hour for every hour the employee works, until the contract is changed.
Should I put my employment contracts in writing?
Generally, oral contracts are just as enforceable as written ones. Only contracts for a long period (such as a year or more) must be in writing to be valid.
The problem with oral contracts is that they are hard to prove if the other side denies making a contract or disagrees with you regarding its terms. That's why many employers like to put employment contracts in writing if they are hiring employees in high-level positions.
If you need help writing or negotiating a contract for your employees, contact an attorney who specializes in employment law.
Changing the terms later
If you don't have an employment contract for a specific period of time, you can probably change the terms of the employee's employment. For example, even if the employee began work making $8.00 per hour, you could later reduce the employee's pay to $7.00 per hour - as long as you give you notice before making the pay cut. Once you tell the employee that the wage is $7.00 and the employee continues to work, you probably have just entered into a new contract with the employee for $7.00 per hour.
What is an "at-will" contract?
If you have an "at-will" contract with your employee, you may fire the employee or change the terms of the contract at your will, i.e., without any reason (so long as your reason does not involve something like illegal discrimination). And the employee can quit at any time. Contrast this with a contract for a specified period of time, where you might not be able to fire the employee without just cause and the employee cannot quit during that period.
If there is no express agreement regarding the length of time of the contract, it is generally presumed to be at-will.
What is an arbitration clause?
An arbitration clause in an employment contract says that if you and your employee ever get into a dispute, you will fight it out in front of an "arbitrator" and not in court. An arbitrator is like a private judge, and the arbitration hearing is a lot less formal than a court hearing.
Why would I want an arbitration clause?
Employers like arbitration because it is usually a lot cheaper than fighting in court. If you use an arbitrator, the employee can't take the case to a jury, who might be more sympathetic to the case than an arbitrator.
Arbitration is usually final and binding, so neither side will be able to appeal. If you have questions about employment contracts, consult with a business lawyer near you.
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