Considerations to Make for the Ideal, Loophole-Free Contract
Employment is a type of business relationship, and like any other, starting off on the right foot means starting off with a well-made written agreement
Congratulations. Your company is on the rise and is experiencing significant growth. Expectedly, your hiring requirements have also become more extensive. Although right now, your team is still just you and your industry-friends who’ve built the business, and you haven’t had much experience hiring in a continuous and official capacity. Ideally, it’s best to have recruitment professionals deal with this process, though you’d also still be the one to initially hire those individuals.
The olden days of when agreements can be reached with a nod and a handshake are obviously long-gone, and contracts are now commonly put in place to, among others, protect employers’ and employees’ best interests.
Whether you already have that trusted administrative team to rely on, are embarking on your first set of hires, or are an HR and recruitment professional yourself, it’s simply essential to know what considerations to make when you hire and produce the associated employment contracts.
Type of Employment
Obviously not all jobs are the same, and expectedly neither are the contracts. Jobs tend to vary based on the specifics of each job (project based, remote work, seasonal, etc.), and it's these specifics which will help initially determine what type of contract you’ll draft for each employee. A key guideline to follow is how the Labor Code of the Philippines classifies types of employment in the country:
• Probationary employment - This is when employment is subject to a period of observation and evaluation that is intended to gauge if the employee is suited to hold the position permanently.
• Regular employment - Unless the employee is terminated afterwards or their probationary contract is extended, regular employment is typically what follows probationary employment. Regular employees are those engaged in activities which are usually necessary or desirable in the usual business or trade of the employer.
• Casual employment - This status is granted to employees who have rendered at least a year of continuous or broken service, but are not considered regular employees.
• Project employment - This is employment that only applies to a specific project, ending upon the project’s completion or an agreed upon date.
• Seasonal employment - Applies to jobs which are recurring or irregular
• Part time or Fixed employment - This is for employment where the hours rendered are less compared to regular and casual employees. While allowing for flexibility, this type of employment also means less pay and possibly not receiving the standard benefits applicable to full-time employees.
Given your right to employ one or more of these types of employees, it is important that the contracts you draft clearly states the type of employment for each to eliminate confusion and avoid possible disputes in the future.
Job Details and Related Information
While the job description they saw from your job post would have already given the employee/s an idea of their role as early as when they were still applying, reiterating this in their contract and adding further details not only makes it legally binding, but also sets the right expectation/s for both employee and employer. Making a contract as detailed as possible is simply a good rule of thumb, and the following are the essentials you can start with:
• Job Title and Description - While a job title already typically describes the role or position an employee holds in the company, including the terms that denote the level of a position and the responsibilities it holds. (i.e. managers, supervisors) and a short description of the employees main duties.
• Start Date - The month, date, and year the employee starts work for the company. Commonly, this is also the date which the contract takes effect.
• Salary - Don’t just include the gross amount of what employees are paid, but also the schedule for crediting (bi-monthly, monthly, or via commissions), as well how it’s divided (basic salary, allowances, etc.)
• Employee Benefits - Detail the statutory and company-mandated benefits they receive, including paid leaves of absence (vacation, sick, maternity, paternity, etc.), HMO, government contributions, and the like. By featuring great detail, they’ll not just be made aware of what they’ll receive, but also not make assumptions regarding what isn’t provided.
• Work Duration - This helps clarify how long the duration of the contract/work is, particularly for probationary or per-project employment, and if there are any provisions for possible extensions, as well as what occurs after the contract ends.
• Length and Condition of Probationary Period - In line with probationary employment, it is also important to include with the length time all of the conditions which need to be met for the successful completion of the probationary period.
• Hours of Work - Apart from indicating how long the employee is expected to work each day, including the hours of work is also the opportunity to clarify if the schedule is flexible, and is set on particular shifts (i.e. graveyard, mid-day, etc), and days (Monday to Friday, Tuesday to Friday for 12 hour shifts, etc).
• Periods of Notice - These are the timeframes employees are required to inform the employer about absences, resignation, and the like. It is to also indicate the employer’s obligation on their end to give notice to the employee in certain cases like termination, and if there are any circumstances in which the employee will receive severance pay and the amount.
• Code of Conduct and Company Policies - This details the behavior expected of every employee via following rules that often define the culture of your company. Examples include policies on smoking, the use of mobile phones, the internet, and email usage, health and safety, sexual harassment, discrimination, and the like. This also includes details of the associated actions taken for violation of any of the policies. If your company is large, its code of conduct is also likely of a grander scale, and be a separate document altogether. In such a case, make sure a provision to follow all items in the said document is still included in the contract to avoid issues related to it in the future.
• Employee Grievance Mechanism - Every manager or owner eventually faces disputes between the company and employees, many of which are often based on incidents of employee discipline or dismissal. Along with some of the already mentioned provisions, having a formal process in place which workers can use to inform the company of problems or complaints will help keep possible problems in-house, and allow for resolutions to also be reached only within the company.
While job details and related information help ensure a solid working relationship between you and your employees, clauses and other provisions is what will help keep your company protected. The provisions help secure any proprietary information your company owns, as well as any products, services, and related technologies created and developed within its jurisdiction.
• Confidentiality Clause - Also known as a Non-Disclosure Agreement, this is a legally-binding clause stating that sensitive information pertinent to your company cannot be shared with any external parties both during and after employment. Those considered sensitive company information can include but are not limited to trade secrets, lists of clients, salary information, financial details, and future plans.
• Invention Assignment - There are instances when employees develop new products, processes, or services while under a company’s employ and while in use of its resources. Having an Invention Assignment in your contract can provide you semblance of exclusive ownership of, and applicable rights to, and intellectual property created under your employment. These can range from the copyrights to written content and marketing collaterals, patents based on original processes or designs, and trademarks for original names, symbols, or logos, among others.
• Non-Compete Clause - Alternatively considered as a Conflict of Interest Clause, this provision is what prevents employees from going into business with or working for other entities that are of the same nature as their employer. Apart from competitors, these can include businesses in partnership or have an affiliation with the employer. This provision will provide you with a level of assurance that your employees’ personal lives and overall career are not at odds with what they do for you.
• Non-Solicitation Clause - Former employees, especially disgruntled ones, can sometimes end up recruiting others to leave the company. A non-solicitation clause will help prevent such former workers from being able to convince others to leave your employ. Additionally, the clause is also for the prevention of luring customers and clients away from your company.
As your company evolves, so will your employee contracts. Hence, a good contract should be flexible enough to allow job descriptions and other parts to change over time. Apart from the previously mentioned considerations which you should make, it is also important to make sure each employment contract you draft is worded carefully to strike the ideal balance of precision and flexibility.
Disclaimer: While significant efforts have been made in developing this article, it by no means guarantees for accuracy and legality. Please seek further verification from an experienced hiring professional and/or legal expert to ensure your contracts are specific to your business and industry, and is in full accordance with local labor laws.