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Employment Agreement

Advantages and Disadvantages of Employment Agreement

A clear employment agreement is made to retain and attract top employees with specifically defined duties and benefits. It is a legally binding document that protects the interests of both employers and employees. The advantages and disadvantages of an employment agreement depend on the provisions and clauses put forth in the agreement.

An Employment agreement or contract is a legally binding letter of consent between an employee and employer. It consists of rules and regulations laid by the employer to follow during the tenure of employment in return for an agreed salary and benefits. The agreement establishes the responsibilities and rights of the employer and employees. It is a legal document and is enforceable in a court of law. The employment agreement outline and protects the right of employees and employer. The employer can include terms that are favorable to the company. Employment agreements can also outline responsibilities that an employer can use to show non-compliance to justify a termination. The employees can include and negotiate terms that are most important and favorable for them. It may include things like, compensation or benefits packages. It can also protect against termination without cause. 

What Are the Advantages and Disadvantages of Employment Agreement?

 Advantages of the Employment Agreement

  •  Every time an employee leaves, a lot of time and money has to be spent on training a new employee. Adopting perfect employment agreements with benefits, like signing bonus, and planning on spending money on training. It is advisable to structure an agreement in a way that it will keep employees in the organization for a maximum period.
  • Helps in retaining key and skilled employees for a long time. Retaining good employees is very difficult due to competition. Fixing a minimum period of employment in the agreement will safeguard the interest of the employer. Providing attractive packages and benefits will refrain from letting the top employees leave the company.
  • The main aim of making an employment agreement is to guarantee a job to the employee and labour certainty to the employer. By entering into employment agreements, the employees will be guaranteed job security.
  • In the agreement, the responsibilities and nature of the job will be mentioned in detail. It helps with better focus, performance, and accountability of the work entrusted.
  • It provides a favorable working environment with employees with a clear set of purpose and structure in the company as the job responsibilities are determined and fixed in the agreement.
  • A good employment agreement can be used as a device for employment by offering job security and other benefits differentiating the employer and the competitor.
  • The legal implications and penalties will make sure, that both the employees and the employer will not cease to work before the period of the agreement or within the time frame specified in the contract.
  • Disputes arising out of terms & condition of employment can be settled by reviewing the agreement instead of approaching the court for intervention.
  • If the employer is looking to employ for a short-term based employment agreement, it makes this less risky on time and money spent on training such person compared to a regular employee.
  • The employer can have the right or patent on inventions done by the employees using company resources and time even if the intelligence and knowledge of the employees are used for it.
  • A nondisclosure clause in the employment agreement will prohibit the employees from disclosing any internal issues or grievances to a third party, which may harm the interests or future prospects of the company in the competition. The agreement will work as a tool to amicably resolve the issues internally by addressing the concerns.
  • An employment agreement can protect the proprietary and intellectual information being leaked or stolen by an employee by including confidentiality clauses. It will prohibit the employee from any information about the employer to any third person that may work against the interest of the employer. Employers will have legal protection and can take criminal proceedings if the agreement is breached by the employee.
  • An employment agreement will create a legal bind, which will ensure that either party will breach the terms of the contract. Making a legally binding agreement will create better incentives to make a relationship successful.
  • Remuneration, benefits, and entitlements are agreed upon and fixed to avoid future disputes. The employment agreement will specifically mention the timings of work, leave, and holidays. Benefits like health insurance, pension benefits, and life insurance, can also include vacation time, paid time off, sick days, expense accounts, and conveyance in kind or cash.
  • In the course of the employment, hired employees may indulge in research and development. In any case, if such R & D work is beneficial to the employer, then an employment agreement can entitle the employer the copywrites on the research, data, publishing, methods, literature, and findings of the employee during the tenure of the agreement. This can be claimed if the employee uses the resources and time of the employer.
  • The Non-disparagement clause protects the employer’s interests in an employment agreement. It ensures that no employee will go against the employer after termination of the agreement, in turn for money or kind.
  • To ensure an employee’s potential is utilized for the employer’s benefit, the employer can prohibit an employee from taking up a part-time job after working hours, stating it would hamper the employee’s performance towards the employer.
  • After the termination of the agreement, the non-compete clause in the employment agreement will prohibit the employee from competing with the employer’s business. It can restrain using outside resources directly connected to the employer’s business for the benefit of the employee.

Emplyoment contract online

Disadvantages of the Employment Agreement

  • Too many restrictions and clauses will hamper the employer and employee relationship. The initiative to improve and bring in benefits to the company will be lacking. The employee will be interested in completing the agreement period and leaving the employer. 
  • Nondisclosure and Non-disparagement clauses are sometimes termed illegal when it is concerned with the welfare of the employee. Employers can use this clause to curtail information being shared on issues of employees to a third party. Any grievances concerning the welfare of the employees cannot be shared or informed to a third party.  
  • The employees cannot leave the employer without prior notice as agreed upon or after completing the agreement period. This hinders getting better opportunities after the termination of the agreement, or else they will have to face legal consequences for breach of the agreement.

An employment agreement is accordingly an essential component of the employment relationship. Some clauses will need to be scrutinized to avoid future disputes between the employer company and the employees. Such clauses should be altered according to the individual’s needs, to secure maximum business protection. Before signing, to avoid the consequences of not holding up your end of the bargain, all the terms of the employment agreement should be reviewed by the employee. Overall, protecting both parties in the transaction is always the best course of action, which is another benefit of an employment agreement. 


Employees and employers should carefully study the advantages and disadvantages of employment agreement before signing. You can always take the assistance of legal platforms and advisors like Vakilsearch to make an agreement that benefits both parties. 

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