What Are the Limitations of Employment Contracts?

Employment Contract

At times, it may be a good idea to have employees sign an employment contract prior to beginning work, but there are limitations to what employers can do with those contracts. Some terms may be difficult to enforce, while others may be flat-out illegal. Here, we’ll look at some of the common limitations of employment contracts.

Legal Rights and Regulations

First of all, it’s important to know that employers cannot have employees sign away basic substantive rights in their employment agreements. Contracts that do include these terms are likely to be overruled by a judge in the event of a dispute, so they’re best left out.

For example, having an employee waive their right to minimum wage or to damages in the event of retaliation will likely be overturned in a court of law.

In addition, certain types of clauses and terms are completely outlawed in certain jurisdictions. The state of Illinois, for instance, does not allow non-compete clauses for lower-wage workers.

Enforceability of Terms

A contract is only effective if it’s enforceable, so it should be constructed in a way that helps facilitate enforcement. For example, setting a specific term of employment—typically one to three years—wouldn’t allow you to force an employee to work for you for the full term. If they quit, there’s nothing you can do to make them come back.

On the other hand, including certain bonuses or incentives conditional on fulfilling the term would make the contract more effective since those incentives can be enforced under the contract.

Other types of contract terms such as non-competes and nondisclosures may be difficult to enforce as well if they’re constructed poorly.

Reasonable Terms and Good Faith

In order to hold up in a court setting, the terms set forth in an employment contract need to be considered reasonable. What exactly constitutes “reasonable” in a specific context may be a bit nebulous or subjective, but there are general guidelines to follow in most cases. If the terms in a contract stray beyond those guidelines, they will likely be overturned if it comes to a dispute.

Using the example of a non-compete agreement again, it would only hold up if it isn’t considered to be overly restrictive to an employee after leaving a company. If the duration is too long or it applies to too broad a geographic area, it likely won’t be enforceable.

Mutual Responsibility

One final—and fairly significant—limitation of employment contracts is the fact that the responsibility required goes both ways. Both the employer and the employee are obligated to comply with the contract, and if one decides to back out, the agreement will need to be renegotiated with both parties agreeing to the new terms.

If one party doesn’t agree to the new terms, it cannot be forced.

A Contract Is Only as Strong as Its Construction

Ultimately, an employment contract is only as strong as its construction, particularly when it comes to compliance with applicable standards, best practices, and regulations. Outside counsel from an attorney is often necessary to make sure an agreement is fully enforceable and effective. As such, it’s best to involve an employment lawyer when negotiating employment contract terms.

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