Employment contracts are written agreements between an employer and an employee that detail the workplace duties and responsibilities of the employee and the compensation that the employer provides in return. Employment contracts typically lay out the wages, bonuses, vacations, medical leaves (including maternity/paternity), stock options, and other benefits and compensation that the worker receives for fulfilling his/her obligations to the employer. These obligations are also specified in the contract, as is the duration of the worker-employee arrangement, the authority of the employee, ownership of intellectual property, and dispute resolution mechanisms. These agreements also include termination provisions, and they may also include post-employment confidentiality, non-compete, and non-solicitation clauses.

Employment contracts enjoyed a marked increased in popularity and utilization during the 1990s. Previously utilized almost exclusively by large companies in securing top executive-level talent, contracts became more prevalent in mid-sized companies, who led a trend toward using these types of agreements to secure the services of mid-level executives and managers. Analysts cite benefits that accrue to both sides in accounting for this recent surge in usage. "As the social contract between employee and employer weakens, the employment contract has gained huge ground," explained Gillian Flynn in Workforce. "A well-written contract can be a boon to both sides. Employees feel more secure, and the company knows it has set boundaries for hiring, firing, compensation and other sticky details."

In addition, many analysts point to small businesses as a catalyst in the growth of such agreements. "In recent years employment contracts—and the perks, bonuses, and stock options often provided in those contracts—have become common and necessary for high tech, software, online, and multimedia start-ups operating out of extra bedrooms, garages, and sub-leased office space," observed Owen Sietel in Multimedia and Entertainment Law Online News. "The success of many such companies is now well documented, as are the riches secured by talented individuals who have tied their compansation to the success of these companies and obtained millionaire status without ever having to don a business suit."

Some business experts, however, contend that employment contracts can have a negative impact on long-term business health. According to this point of view, employment contracts undercut employee trust, loyalty, and dedication toward employers because they are seen as cold and impersonal documents that send an "everyone needs to look out for oneself" message. "The new employment contract inherently de-motivates employee spirit and, over the long term, will suboptimize organizational performance, becoming a self-destructive business strategy," argued Larry Hansen in Occupational Hazards. "Where employee buy-in and ownership is lacking, so too will be the discretionary effort critical to success. As a consequence, a 'work-to-rule' performance standard will evolve, and mediocrity will prevail." Critics contend that the emotional detachment that accompanies employment contracts will lead to increased turnover in important positions, especially since demographic trends and the ascendancy of the information-based economy are expected to increase the competition for experienced workers in the early part of the twenty-first century.

CRAFTING AN EMPLOYMENT CONTRACT Business owners who are considering introducing employment contracts into their operations should consider the following:


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Butler, Timothy, and James Waldroop. "Job Sculpting: The Art of Retaining Your Best People." Harvard Business Review. September/October 1999.

Employment Contracts: An Employers Guide. Butterworth, 1991.

Falcone, Paul. "Using Employment at Will and Probationary Periods to Withstand Termination Challenges." Employment Relations Today. Summer 1998.

Flynn, Gillian. "Employment Contracts Gain Ground in Corporate America." Workforce. February 1999.

Hansen, Larry L. "Don't Sign the New Employment Contract." Occupational Hazards. August 2000.

Jacksack, Susan M., ed. Start, Run and Grow a Successful Small Business. CCH Inc., 1998.

Seitel, Owen. "Signed, Sealed, Delivered: A Brief Overview of the Employment Contract." Multimedia and Entertainment Law Online News. Vol. 5, no. 501, 1999.

Willis, Susan Gaylord. "Protect Your Firm Against Former Employees' Actions." HRMagazine. August 1997.

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