What Is a Contract Letter?

Imagine having found the person with the qualities and credentials that you believe are perfect for the job vacancy in your company. As part of the human resource who is in charge of introducing new talents into the ecosystem, you are an extension of the institution. Your decisions affect the company. That is why before you can hire the promising job candidate, you have to make sure that the interest of the business is protected. However, this is not a license to override the rights of the employee for the rights of the company. Therefore, both employer and employee enter into an agreement or a contract to declare their terms in the relationship.

A contract letter is a legally binding document shared between the party who provides the service and the party who avails of such service. It specifies the scope and extent of the time-bound agreement shared between the employer and employee. Also, the document explicitly defines the nature of the job, the terms of employment, and the duties and obligations of both the worker and the company. The written agreement binds the two bodies under the described terms and serves as an instrument for future conflict resolution.

Elements of a Contract

A long time ago, a verbal agreement and a handshake were sufficient when coming to terms about a business transaction. The relationship was built on mutual trust. However, you cannot risk the company’s welfare for the concept of good faith. And it is not because people today cannot be trusted. You are responsible for the good of many others, so you have to exercise all means necessary to protect the interest of the organization. Although there is an oral iteration of the agreement, a written version holds more legitimacy and power.

Unwritten contracts and agreements also invite ambiguity. During disputes, it is harder to seek compensation for damages or to prove that the claims of such are unfounded. A violator may also walk free from any form of accountability because no part in the contract makes his or her actions illegal. You may even be sued for the damages the stir has caused the person. Transcribing the business deal makes enforcing the agreed obligations of both parties easier. Therefore, you should explicitly delineate the terms of employment so that you can go back to it when you need to.

Period of Validity: Contracts are not retroactive. The terms and conditions indicated are only effective within the period specified in the contract. After the terms of the contract is considered to be expired, the parties could no longer assert their rights to enforce the stated obligations.Terms of Employment: The employer should declare in the contract the type of service that the employee will provide. This document for employment contains an elaborate description of the job and the person’s obligations so long as he or she is bound to the contract. That said, the contract shall specify the period when the person is expected to render his or her services to the company. The document should also declare the ownership of work-related materials and proprietary information.Rights and Benefits: Although the list varies from state to state, any big or small business is required to provide employee benefits. The company and the state accord these rights and privileges to its workers for being part of the organization. The perks include compensation plans, allowances, leave benefits, health and disability insurances, and retirement plans.Disciplinary Processes: When serving notices for disciplinary action, warning, investigation, or termination, the company has to give due process to its employee. The contract should explain what merits the corresponding action of the company towards the employee. Moreover, the company employee should also know how the business will address the issue.Additional Attachments: You can also include statements on confidentiality, non-disclosure, and non-compete agreements should you find that the company is at risk without these. Nevertheless, this will not apply to every business, as different industries have different needs. Essentially, these clauses protect the data of the company from being used by its competitors. You can also expound on the privacy policy of the company concerning work-related accounts.

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The Validity of a Contract Letter

A contract is not valid just because you completely defined the previous elements. Note that some factors would make the contract void, and there is a difference between void and voidable contracts. You can engage in a voidable contract because it is legal. Either party can enforce the obligations in the document and withdraw from it. Furthermore, withdrawal can be due to personal reasons or a breach of contract. The latter occurs when either party did not adhere to a term or condition in the agreement.

On the other hand, the terms in a void contract cannot be enforced on either party. This is because the contract had no legal standing when it was formulated. To ensure that you are not at the losing end of the agreement, it is important to know what grounds make the contract valid. After knowing what a contract should contain, what, then, constitutes the legality of the terms in the agreement?

For a contract to be valid, the intention of both parties that came into the agreement is also legal. In this case, the employee intends to earn money by providing service. At the same time, the employer intends to avail of the service for his or her business.

Valid Offer

The two parties enter into a contract when one offers something that the other accepts. The offer comes with a promise to be fulfilled. In a company setting, the employer offers the job to the employee in exchange for compensation. The employee then accepts the offer and its terms.

Mutual Assent

The parties mutually consent to the terms and conditions of an agreement. For example, the employer will provide the salary after the company employee has rendered the paid-for service. Also, remember that the contract has a period of validity. Therefore, once the employer has completely paid for the service, the employee will no longer receive more.

Consideration

There has to be a profit of one and a loss of another to make the promise valid. For an employment contract, the company pays money in exchange for the service or labor of an employee. This element should be agreed prior to the exchange. Any legal service contract requires consideration for it to be valid.

Both parties can legally consent to the agreement. They should be of legal age and are of sound mind. During the time of the negotiation or deal, they should not be under the influence of drugs or alcohol. Additionally, the agreement should be made without pressure, intimidation, fraud, or deception. Neither party should be in a false impression about the deal.

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Contracts are not a rare occurrence. Most people may have already encountered a simpler version of a contract as they navigate the Internet. However, the majority of these people just click “Agree” without reading the terms and conditions of what they agree to. The TL;DR (Too Long; Didn’t Read) mentality, as the online community calls it, has grave consequences as stating that you didn’t read the contract because it was too long will not stand in court. Although it is the responsibility of the signatories to understand first what they are saying “Yes” to, we can’t put the blame solely on the layperson. It is counterintuitive to use the exclusive legal parlance in writing content for the average person’s consumption.

Aside from lack of information on the repercussions of agreeing to what you don’t know about, part of what makes people click immediately on “Agree” is the length and readability of the document. The average non-lawyer person will not bother reading through paragraphs upon paragraphs of obscure content. This puts the person at risk. Imagine the statement “We have the right to use the identity you provided, and we can hand it to third-party data companies if we want to” discreetly embedded among big and vague legal terms that the person did not bother to read. The example may be unrealistic and not at all legal, but that is the point. Legal parlance, aiming to be as exact and unambiguous as possible, became what it swore to fight against.

Since people from any stature may contract, there is a movement to make the language used accessible to the layperson. A business writing article in the Harvard Business Review magazine argued that there is no practical need to use legal jargon when the contract can deliver the same message in a simple, mass-oriented language. Contracts should be understandable by the person reading it. Business contracts do not have to completely shift to the colloquial language. The point is that when you use long, winding paragraphs that can be simplified, and they still carry the same specificity in its message, it may be an indication that you are being unnecessarily wordy to stick to the status quo.

How to Draft A Contract

At the end of the day, the company and the employee engage in a contract to protect both their interests without overriding the other’s rights. The agreement serves as specific guidelines that govern the functions of both parties. Prepare the contract with its purpose in mind.

Step 1: Verify the Identity

People may not be who they claim they are. It goes without saying that you should know who you are making arrangements with. You also need the correct identity of the other party in the contract. The agreement must bind the correct people under its terms. Verification helps safeguard your company from fraudulent and unlawful activities. When signing the contract with the person, ask for a valid form of identification, such as an official ID card, government ID card, passport, and other identifying documents.

Step 2: Prepare the Agreement

Written contracts have more bearing and power than oral contracts. With a documented agreement at hand, there is hard evidence that can support present and future assertions concerning the terms and obligations. It is easier to secure accountability and enforce obligations because you have a written record of the deal. You can either start from scratch or look for a printable contract letter template that is specific to your industry. Different industries will have a variation in the content of their agreement. Make sure that the template you use covers all the bases that will save you legal trouble down the road.

Step 3: Make Contracts Job-Specific

Just because a particular industry uses a statement or clause in their contract, doesn’t mean you should follow suit. Make sure that your document is not generic. For example, the position may not need you to include a non-disclosure agreement since the person would not even be a participant in the discussion of the company’s sensitive information. A person that does not deal with proprietary data or insider information does not have to sign a covenant for a non-compete. Different positions in the company have different responsibilities.

Step 4: Avoid Ambiguity

When you are defining the terms that bind the two parties and govern the relations, you have to be clear and specific with the delineations. Describe what is expected from both parties. To efficiently carry out the functions agreed beforehand, these must be elaborated at the start. You cannot just say that the person does something wrong when you haven’t defined what the right thing to do is. Ambiguous terms leave a lot of room for misinterpretations and disputes regarding what is the right interpretation.

Step 5: Talk with Your Lawyer

No one knows the law better than those who have studied and specialized in it. After you have drafted the contract, always have the company lawyer review its details. You may have missed out on essential clauses, or your sections may have included vague provisions that can jeopardize the company later on. Talking with the expert in law helps ensure that there is no loophole that a violator can exploit. Doing so helps protect your business’ interest. A solid agreement lets your company legally apprehend violators and address the damages.

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FAQs

How can I terminate a contract?

When the company decides to end the employment contract, the HR office notifies the employee through writing. The termination process should follow the agreed terms in the contract. The company should notify the said employee within the notice period indicated in the agreement.

Is a job offer letter the same as a contract?

No, job offer letters are not contracts, and they are not legally binding. A job offer letter is an invitation given by the company to a potential employee. It contains the job details. The invite can also be through a phone call or email. A contract is a legally binding document that specifies the terms and conditions of employment. It is signed when the potential employee is hired.

What are the different types of employment contracts?

There are two main forms of employment contracts. When the company subscribes to the services of contractors, freelancers, and others only for a specified duration, it prepares a work agreement or fixed-term employment contract. Employers draft indefinite contracts when the employment period is unspecified and its termination depends on when the company or employee wishes to end it.

What is the difference between contract letters and employment letters?

A contract letter states, in detail, the responsibilities and obligations of the employer and employee. An employment letter is a document signed by the company that verifies the employment status and details of the employee. One of the instances wherein your workers would ask for the latter is when they are looking for apartments to rent.

It can be hard to build trust when the business world is buzzing with lies and lawsuits. While most generic contracts may sufficiently cover basic threats, it will be an uphill court battle when no section in your document touches on a particular offense. It is tragic when a company falls victim to individuals who took advantage of legal loopholes. However, the idea that mutual trust in business is dead is a hasty generalization. The situation does not warrant a company to overlook the rights of its employees. Instead, contract letters should cement the trust by outlining what is expected from both the employer and employee. Facilitate a healthy professional relationship with your employees from the start using an improved employment contract letter.