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02. Employment Contracts

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02. Employment Contracts

Minimum requirements

Under the laws of the United States, there are no minimum requirements for an employment contract. Also, in most states, no written memorialisation of any terms is required. An employment relationship in the United States is presumed to be “at-will,” i.e., terminable by either party, with or without cause or notice. Indeed, a majority of employees in the United State are employed on an “at-will” basis, without a written employment contract, and only with a written offer of employment that outlines the basic terms and conditions of their employment.

There are also no U.S. federal requirements as to the minimum contents of an offer letter. In some states, such as New York,  employers must notify employees in writing at the time of hiring of their regular rate of pay, pay day and overtime rate, if applicable, as well as the method of payment (i.e., whether employees will be paid by the hour, shift, day, week, salary, piece or commission) and any allowances that will be claimed as part of the minimum wage (for tips, meals or lodging), among other requirements.

Highly-skilled and compensated employees (e.g., high-level executives) are traditionally employed pursuant to written employment contracts. These contracts specify the basic terms and conditions of employment, such as position, job responsibilities, salary, compensation, incentive pay, and stock options. These also define what conduct will justify termination for cause and provide for severance pay in case of termination without cause.

Whether the employment relationship is “at-will” or pursuant to a written employment contract, parties are free to negotiate and set the terms and conditions of their relationship, so long as none of the provisions violate any federal, state or local law, rules or regulations governing the employment relationship (e.g., the pay practices established in the Fair Labour Standards Act, the prohibition of discrimination under the federal Civil Rights Act of 1964, and the like).

Fixed-term/Open-ended Contracts

No federal provision governs fixed or unlimited term contracts. Unlike many other countries, American law does not limit the duration of a fixed-term employment contract or the circumstances under which the parties may enter into a fixed-term employment contract. In the absence of an employment contract, employment relationships are presumed to be “at-will,” terminable by either party at any time, with or without cause.

 

Trial Period

No legal provision governs a formal “trial period.” However, some employers prefer from a business perspective, to have an internal policy on trial periods, often referred to as “introductory periods” or “probationary periods”, which generally provide for a formal performance evaluation after an initial stated period of employment (ninety 90 days). Employers often condition an employee’s participation in their individually established employee benefits programs on a successful completion of the “probationary” or “introductory” period. From a legal perspective, there is no real advantage to having a trial or probationary period; but there is a potential downside to it, if it causes confusion regarding the employee’s at-will status.

If a probationary period is applied, care must be taken in the drafting of the relevant offer letter, agreement or policy, so that no negative implication is created, wherein it is required to show “cause” if employment is terminated after the period expires. If the employees are represented by a labour union, the provisions of the collective bargaining agreement protecting the employees against discharge without cause, frequently do not apply to employees during their probation period of employment.

Notice Period

Except in certain mass dismissals or as provided for in an employment contract or a collective bargaining agreement, U.S. law does not impose a formal “notice period” to terminate an individual employment relationship. Most employees are employed “at-will” and either party can terminate the employment relationship without notice. In some states, where payout of unused vacation time is not required by law, employers frequently will pay an employee for unused vacation days, provided the employee gave some advanced notice of resignation.

Under the Worker Adjustment and Retraining Notification Act (“WARN Act”), employers must give 60 days’ advance notice to affected employees in advance of plant closings or covered mass layoffs. A further discussion of the requirements of the WARN Act can be found below.

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