We Protect Workers

Not Everything Is Written – Learn About Implied Employment Contracts

An employment contract can be a traditional written agreement, but may also be implied from verbal statements by the employer, memoranda, handbooks or policies adopted during the employee’s employment.

Employment contracts are most often used by employees to show that the employer’s right to fire an employee was limited. In most states, employment is generally considered at will, meaning that the employer can terminate employment (or the employee may voluntarily leave) at any time. An employer’s right to fire an employee may be limited, however, where the employee can show that the employer entered into either an explicit contract to employ the employee for a certain length of time, or an implied contract created by, for example, a detailed disciplinary procedure contained in the employee handbook, or a policy stating that employment will be terminated only for specific disciplinary reasons. An implied contract may be enforced against the employer where a policy or handbook has been distributed to the employee, and the employee, knowing the terms of the policy or handbook, has opted to continue working for the employer.

Many states also recognize that a verbal statement by an employer, such as, “you’ll be here as long as your sales are above budget,” may create a binding contract of employment. The enforceability of such verbal contracts is limited, however, by the statute of frauds, which provides that any verbal agreement that cannot be carried out in less than one year is invalid. So, in the above example, because the employee conceivably could have fallen below budget and been fired within one year, the agreement would be enforceable, even if the employee was not fired. A verbal contract must also be specific in order to be enforceable. A statement such as, “You’ll have a job here as long as you like.” generally will not be enforced.

Finally, a few states recognize an implied contract of employment where an employer has engaged in a course of dealing over a period of years, for example, by keeping employees on as long as they maintained certain standards of performance. As a result, an employee may claim that he or she may not be fired as long as he or she continues to meet those standards.

Employment contracts, whether written or implied from employee handbooks or policies, may also provide the terms of such benefits as vacation, sick leave and employee grievance procedures.

Employers also use employment contracts to govern an employee’s behavior after employment has ended, for example, by limiting the ways in which an employee may use confidential or proprietary employer information, or by restricting the employee’s right to compete with the employer. Noncompetition agreements are particularly difficult to enforce, however, and many states have enacted statutes specifically limiting their effectiveness. In general, the scope of such an agreement, whether the geographic area covered or the length of time that it lasts, must be no broader than necessary to protect the employer’s business. In addition, while a covenant not to compete may typically be imposed on a new employee as a condition of employment, if it is imposed on an existing employee, it must be supported by some independent consideration beyond a simple promise of continued employment, such as a raise, a bonus payment or improved commission terms.

Meeting With Your Employment Law Attorney

To read and print out a copy of the checklist, please follow the link below.

Meeting with Your Employment Law Attorney

You can download a free copy of Adobe Acrobat Reader here.