Most employees in the United States work at will, which means they can quit at any time for any reason, and they can be fired at any time, for any reason that's not illegal. Even at-will employees can't be fired for a discriminatory reason, for example, or because they reported dangerous working conditions or complained of sexual harassment. However, an employer doesn't have to have good cause to fire at-will employees. They can be let go to make room for new employees, to reorganize a department, or simply because they don't seem to be the right fit.
An employment contract can change an employee's at-will status, if the contract puts limits on the employer's right to fire at will. This article provides an overview of employment contracts. It also covers common contract provisions, including noncompete clauses and nondisclosure agreements.
Types of Employment Contracts
An employment contract can take one of three basic forms:
- A written contract is a document, signed by both the employer and employee, that sets out the terms of the employment relationship. It might include, for example, the start date, job duties, compensation and benefits, and provisions protecting trade secrets and other confidential information (explained below).
- An oral contract is an agreement that is never reduced to writing, but is instead agreed to aloud by employer and employee. For example, if an employer makes certain statements about the job ("the pay is $15 an hour, with a raise of $2 to $5 an hour in six months, depending on your performance"), and the employee agrees to accept the job on those terms, that's an oral contract.
- An implied contract is an agreement that is neither put in writing nor stated and agreed to explicitly, but is instead implied by the actions and statements of the parties. If the employer, through a combination of statements, policies, and conduct, led the employee to reasonably believe that she would be fired only for good cause, a court might find that the parties had an implied contract.
Not every employment contract changes the employee from one who can be fired at will to one who can be fired only for good cause or other specified reasons: It all depends on the terms of the contract. If a written contract says that an employee may be fired only for committing a felony, for example, then the employee no longer works at will. However, some employers use contracts precisely to reinforce the at-will relationship. Once the employee signs a written agreement stating that employment is at will, that employee will have a tough time coming back later and arguing that there was an oral or implied contract limiting the employer's right to fire the employee.
Provisions Protecting Confidential Information
Some employers use written employment contracts to secure an employee's agreement to protect its business and confidential information after the employee leaves. Some common provisions of this type include:
- A noncompete clause. In a noncompete agreement (sometimes called a covenant not to compete), the employee agrees not to compete directly with the employer's business, by working for a competitor in the same capacity or by starting a competing business, for a set period of time after leaving the company. Some states don't enforce noncompete agreements. In states that do, the agreement is more likely to be enforced if it is limited in time, scope, and geographical area.
- A nonsolicitation provision. A nonsolicitation agreement prohibits the employee from poaching employees or soliciting customers and clients for a new business or employer. Like a noncompete agreement, a nonsolicitation provisions is more likely to be enforced if it is limited in scope.
- A nondisclosure agreement restricts the employee's ability to use or disclose confidential information the employee learned while working for the employer.
Getting Legal Help
If you are asked to sign an employment contract, particularly one that will tie your hands later (such as a noncompete agreement), you might want to consult with an experienced employment lawyer. A lawyer can review the contract and let you know what it means and whether it can be enforced. If you believe your employer broke an employment contract, a lawyer can help you figure out the best way to proceed and protect your rights going forward.