Employment Agreement Definition

Learn more about what an employment agreement is in business.

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employment agreement definition

There’s more to a job than just the pay. An employee’s quality of life also depends on the terms and benefits of the position. For employers, it’s vital to know in advance what can be expected from the employee. So it’s essential for both sides to have a binding document that fully sets out the details of employment. 

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Employment agreements are a great way to give both employers and employees clarity about the employee’s job. For that reason, all business owners, including small business owners, should consider using employment agreements with their employees. Read on to learn about the definition of an employment agreement and what the benefit is for an employment agreement. We’ll also touch on other considerations underlying employment agreements.  

What is an employment agreement?

Black’s Law Dictionary assigns the phrase “employment agreement” with this definition: “A formal agreement that spells out the rules of engagement between an employee and an employer.” But that’s only a basic definition. An employment agreement’s business definition is a binding agreement between an employer and employee that defines each party’s rights and responsibilities. Employment agreements cover a wide variety of topics. Here are a few:

Aside from these issues, employment agreements often discuss confidentiality matters, behavioral expectations, and even non-compete clauses. Employers generally require employees to sign employment agreements before starting work. 

Other names for employment agreements

Employment agreements have a variety of other names. These include “employment contracts” and “job contracts.”

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Employment agreement — considerations

For most small business owners, it’s a good idea to use employment agreements with employees. However, you should first understand the benefits and drawbacks of employment agreements. 

Employment agreement – benefits

An employment agreement’s greatest advantage is clarity. By addressing the most important employment issues ahead of time, employment agreements reduce conflict. They also improve employer and employee satisfaction by giving both a clear idea of what they can expect from each other. Finally, employment agreements protect both parties and provide them with stability. 

Employment agreement – disadvantages

Employment agreements have disadvantages as well. For one, they limit an employer’s freedom of choice. Employees without employment agreements can be let go for almost any non-discriminatory reason. But employees with employment agreements usually can be fired only for a reason stated in the agreement. Another disadvantage of employment agreements is that they aren’t very flexible. Once both parties agree to an agreement, it is difficult for either party to alter it. 


Employment agreements are a useful tool for defining the roles and responsibilities of employees and employers in a fair and comprehensive way.  

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Employment agreements are very helpful for your business, but implementing one can be a lot of paperwork. In fact, employment agreements are one of many small administrative tasks that can consume your time as a business. We want to make it easier to start and run a business. So we offer a wide variety of products and services that can make your business journey easier. 

Want to form a corporation or limited liability company? Check out one of our Business Formation Services so you can start your own business in a snap. Looking to keep your current business in compliance with various administrative requirements? Use our Worry-Free Compliance Service. Or maybe you need to keep your business’s finances organized? With ZenBusiness Money, you can have your business’s finances at your fingertips, making paying taxes a breeze. Whatever you need, we can help. Let us help you achieve your dreams.

Disclaimer: The content on this page is for informational purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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