Essentials of an employment contract: What should it contain?

Quick overview

• According to the Labour Code, the employment contract must include the type of work, the place of work and the starting date.
• Without a written form, the employment contract is invalid.
• It is also advisable to regulate salary, home office, leave or probationary period.
• Errors in the contract often lead to disputes over the job description or remuneration.
• Changes to the employment relationship are dealt with in an amendment to the employment contract.

Not sure if the employment contract you have prepared meets all the legal requirements? Our attorneys will review or tailor it to protect both the employee and the employer.

What is an employment contract?

An employment contract is a document that establishes the employment relationship between an employer and an employee. Signing it is a crucial step as it confirms the agreement on the terms and conditions of employment, the job description and the rights of both parties. The employment contract must be concluded in writing – without a written form it is invalid (Article 34(2) of the Labour Code). The written form is essential for later proving the terms of the employment relationship.

Simply put, the employment contract serves as a “guide” to your employment relationship – it sets out what tasks you are to perform as an employee, how much you will be paid for the tasks you perform and what benefits or obligations your position entails. In addition, it protects your employer and you as an employee from misunderstandings and legal disputes.

What are the basic elements of an employment contract?

According to Section 34(1) of the Labour Code, every employment contract must contain at least:

• the type of work,
• the place or places of work,
• the date of commencement of work.

In addition to these mandatory elements, it is advisable to include other information for clarity and to prevent disputes, e.g.:

• identification details of both parties,
• a brief description of the work activity,
• the duration of the employment relationship (for a fixed period),
• the method of remuneration and the amount of pay,
• the amount of leave, if any, if it is higher than the legal minimum.

Identification details of both parties

The basic identification data of the employer, such as name, address and identification number, shall be provided. For the employee, the name, surname, date of birth, permanent address or other identifying data. This ensures that both parties are clearly identifiable.

Job position and job description

This item contains the exact job title, for example ‘accountant’, ‘technical officer’ or ‘project manager’. In addition to the job title, it is advisable to include a brief job description so that both the employee and the employer are clear about what the job entails.

For example, the job description may state ‘keeping company accounts’, ‘responsible for technical drawings’, or ‘managing projects from the design phase to implementation’. This detailed description will avoid misunderstandings about the expected job description.

In practice, we often see disputes arising precisely because the job description is too general. For example, an employer only states ‘administrative activities’ but then asks for activities that the employee did not expect. The more specific the job description in the contract, the less risk of future conflicts.

Date of commencement of employment

This point indicates the date on which you officially start work as an employee. The date of commencement is important not only for determining the duration of the employment relationship, but also because this date determines the employee’s other rights and obligations, such as holiday entitlement or entitlement to wages for the relevant period. The typical start date is the first day of the month, but it can be any date you and your employer decide.

If you are drafting an employment contract for the first time or amending an older model, it is worth having it checked by a solicitor. The most common mistakes occur with vaguely worded job descriptions or poorly set remuneration.

Place of work

The employment contract should contain precise information about where you will do your work as an employee. This location can either be a specific address (e.g. the company’s headquarters) or a general description if the employee works in more than one location (e.g. working on different construction sites).

This point is key for employees who travel or have the ability to work from home. Employees in the IT or marketing sector, for example, can do their work remotely – home office is growing in popularity. That’s why it’s important to define in the contract whether they are allowed this “place of work”.

Home office or combined work tends to be one of the most frequent sources of disputes between employees and employers today. A well-designed employment contract should therefore clearly stipulate the possibility of teleworking and the rules for reimbursement of expenses. We can help you with it.

Duration of the employment relationship

The employment contract should clearly state whether the employment relationship is for a fixed or indefinite period. A fixed-term contract should specify exactly when the employment relationship will end and the conditions under which the contract can be extended. In the case of an open-ended contract, the duration is open until the employment relationship is terminated.

Wages, remuneration, leave

The contract should clearly specify what the employee’s salary is, the frequency of payment and whether there are any other forms of remuneration. For example, it may state that wages are paid monthly on a specific date and include certain bonuses. This will also often specify whether rewards are dependent on meeting performance targets or achieving performance quotas.

The contract may also specify holidays, especially if they exceed 4 weeks in a calendar year or if the company mandates what is known as company-wide holidays.

Unclear variable pay or bonuses are also a common problem. In our practice, we repeatedly encounter cases where the employee expects a regular bonus while the employer considers it to be non-remunerative. That is why we recommend describing the terms of bonuses as precisely as possible.

What is the purpose of an addendum to an employment contract?

During the course of an employment relationship, there may be times when certain terms and conditions need to be adjusted – for example, an increase in pay or a change in position. In these cases, it is ideal to conclude an addendum to the employment contract. An addendum to an employment contract contains precise wording about the changes agreed by both parties. At the same time, like the original contract, it must again be signed by both parties.

If the employee was originally employed as an “administrative worker”, but over time has started to perform more specialised tasks, the employer may decide to change the job title to “office manager”. In such a case, there is usually an adjustment in job duties, but also in pay and sometimes in working hours. These changes just need to be formally included in an addendum to the employment contract.

Do you need to modify your employment contract or prepare an addendum without the risk of invalid provisions? Our attorneys prepare employment documentation for employees and companies of all sizes.

Simple employment contract – model

If you want to prepare a simple employment contract in a hurry, you can use the following template. Even with this simpler form of contract, it is important to include all the basic elements to make the contract valid and legally binding. However, we more than recommend that you at least have a lawyer check the contract afterwards to avoid complications.

A typical sample of a simple employment contract includes:

• Identification details of both parties (employee and employer).
• The job title and a brief description of the work activity.
• Date of employment and place of work.
• Salary and form of remuneration.
• Duration of the employment relationship (fixed/indeterminate).

Thus, a simple employment contract for the position of “temporary worker in a café” could include basic information such as the identification of the employer and the temporary worker, the starting date, the hourly wage and the specification of the place of work. This type of contract is suitable for seasonal work or casual employment where it is not necessary to include complex terms and conditions and addendums.

Common mistakes in employment contracts: have you made them too?

Employers often make mistakes when drafting employment contracts that can lead to misunderstandings and legal complications. The most common mistakes include:

• Unclear job descriptions – Unclear job descriptions can lead to employees having different ideas about their duties. Therefore, always provide a detailed description of job duties to avoid subsequent guesswork.
• Omitting an addendum – If there is a change in the terms of the employment contract, such as a pay increase, it is important to execute an addendum to the employment contract. This will prevent any future disputes.
• Incorrectly specifying the duration of the employment contract – For fixed-term contracts, it is crucial to specify the exact end date of the contract and the conditions for renewal.
• Unspecified pay – The amount of pay should be clearly specified in the employment contract to avoid confusion. The employee should be clear about how much money they will receive for their work, when they will receive their pay and whether there are any additional benefits attached to their remuneration such as meal vouchers, 13th pay and so on.

The rules on the mandatory elements of an employment contract apply only to the employment relationship. The law does not define the mandatory elements for performance and employment agreements – however, it is recommended to include similar information for the legal certainty of both parties.

Summary

The employment contract must contain at least the type of work, the place of work and the date of commencement according to the Labour Code. In practice, however, it is also worthwhile to detail the job description, salary, home office, holiday or bonus rules. Vaguely worded contracts are a frequent source of disputes between employees and employers. Moreover, any change in the employment relationship should be addressed in a written amendment. A carefully drafted employment contract protects both parties and helps avoid unnecessary conflicts and litigation.

Want to make sure your employment contract complies with current legislation and really protects you? Affordable Lawyer’s attorneys will prepare or review your employment contract quickly, online and without unnecessary risks.