An Entrepreneur’s Guide to Employment Contracts

employment contract

An employment contract is an essential part of every business. An incomplete or badly drafted employment contract could spell trouble to an employer from both a legal and business perspective. For instance, if an employee learns of certain trade or business secrets of an employer during employment, an unguarded employment contract may mean that when the employee leaves the company, he may utilize the secrets he learned in the course of the employment, and open a competing business. Moreover, the former employee could even “pirate” his or her former colleagues into the competing business. From a legal standpoint, an employment contract which provides less than minimum terms and conditions of employment under labor laws could render the employer liable civilly and criminally liable.

The first thing that should be considered in drafting an employment contract is the nature of the employment. The Labor Code defines certain types of employees, to wit: regular, probationary, casual, project, seasonal, fixed-term.

After selecting the appropriate employee arrangement, the date when the employment will commence and terminate as in the case of a project or fixed-term employee, or the period of probationary employment must be clearly defined. Furthermore, the contract should always define the grounds or causes for termination of employment. Arguably, a mutual termination clause or a provision which allows for mutual termination of employment by serving an advance notice to the other may also be included, provided that the employee understands its import and agrees thereto.

It is also essential to give greater flexibility to employment contracts. Job descriptions can evolve and change over time, and a contract which specifies the duties and obligations of an employee may limit or restrict an employer to assign to the employee only those enumerated responsibilities. Thus, job title and description of the employee’s duties must be worded generally.

Similar to job descriptions, an employment contract should also not exclusively enumerate the benefits which an employee is entitled to. Employees are always entitled to statutory monetary benefits, whether or not they are indicated in the employment contract. A detailed listing of benefits in an employment contract which falls short of the legal minimum can be construed as violative of labor laws and render the employer directly liable. However, if the employee is to receive a benefit on top of what the law requires, this should be clearly indicated and spelled out, i.e., whether the amount is fixed or how it is to be computed, whether it is discretionary, when and how it is given, and how it forms part of the wage.

A confidentiality clause should always be incorporated in an employment contract, to ensure that the employer’s trade secrets, proprietary information or business operation remain in confidence. It should also include non-competition and non-solicitation clauses, which prevents an employee, for a period of time after his employment, from engaging in a competing business, or from enticing away, offering or employing any employees of the former employer, whether directly or indirectly.

Lastly, it is always best to include employee grievance mechanisms, and procedures for implementing employee discipline, because these ensure the preservation and enforcement of both the employee’s and employer’s rights under the contract.

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