Understanding Employment Contracts

Understanding Employment Contracts

Whether you have just received a new job offer or you are hiring employees, this article provides an overview of some essentials that you may need to know regarding employment contracts.

What is an Employment Contract?

Employment contract is a legally binding agreement setting out the terms agreed between the employer and employee during the course of employment.

Types of Employment Contracts:

Oral Contract: –

Where the employment contract was made and agreed orally.  This form of arrangement is most undesirable as nothing is formally recorded and it exposes both parties to potential disputes and misunderstandings in the future.

Written Employment Contract: –

This can be distinguished into fixed term contract and indefinite contract.  A fixed term contract is to be used when the period of employment is fixed, i.e. one-year contract, the period shall be specifically stated.  An indefinite contract is a continuing contract until it is terminated by either party providing sufficient notice period.  Both types of contracts can be used for full-time and part-time employees.

There is no legal requirement for the formalities of a written employment contract, however the followings are some essential terms that should be included in an employment contract.

  1. Identity of the Parties
  2. Notice Period
  3. Job Title
  4. Duties and Responsibilities
  5. Working hours
  6. Qualifications
  7. Place of work and mobility
  8. Remuneration, illness and holidays arrangement
  9. Pay, benefit, commission, pension and bonus
  10. Confidentiality
  11. Restrictive covenants

Written Statement of Employment Particulars

While employment contract is necessary to clarify the terms of employment, a written contract of employment is not a requirement by law.  However, there is a statutory requirement that the employer must provide a written statement containing the terms and conditions of employment to their employees within 2 months of their employment.

A written statement should include: –

  • Identity of the parties;
  • Date of employment;
  • Scale of remuneration;
  • Method of payment;
  • Hours of work;
  • Terms relating to holidays and sick leave and relevant payment;
  • Requirement of termination, i.e. notice period;
  • Job title and description of work; and
  • Place of work

Since employers are required to provide a written statement of employment to their employees, it is highly recommended that they formalise their arrangements in an employment contract.

A clearly drafted and well-defined employment contract could help to avoid and resolve any disputes between parties.  Not only disputes can be costly and time consuming but unlike other legal proceedings the Employment Tribunals rarely awards legal costs to the winning side.

This article was written by Louis Chiu, who is a trainee solicitor at Lester Dominic’s Hong Kong Office.

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