A formal contract is usually composed of terms and conditions that two parties have agreed upon. Such contracts are often done in paper for better safekeeping and future referencing. However, there are also contracts that are not in a written document.

Even if unwritten, these are also considered contracts because they are implied by the actions of one (usually the superior of the two) of the parties. This is commonly called an implied contract.

Implied contracts are made whenever an employer's actions or promises can be understood or perceived by the employee as a guarantee of benefits or continued employment. This type of misconception often happens in the workplace when an employer unconsciously creates a binding contract with a new employee through his actions. If you are an employer and you want to avoid making an implied contract with your employees, follow the guidelines below:

  • During the interview – In the interview process, think carefully whenever you are going to say something to the applicant or new employee. Do not provide a single reason for complicated issues such as termination.

  • Sending the offer letter – Offer letters are made to confirm job offers. Never include dates that can be seen as "term of employment". If you cannot avoid putting dates, you can label them as "start of employment" instead.

  • Promotion – Do not exaggerate praises to employees because they always remember them. Whenever a promotion happens, employees treat it as a sign that they are going to stay longer in the company.

  • Custom and practices – Inform your employees beforehand if you give benefits based on custom such as Christmas benefits. Doing this will prevent them from expecting from you.

  • Handbooks or manuals for employees – Use employee handbooks and manuals to highlight the fact that the employment is "at-will". Off course you also need to explain what "at-will" employment means.

If you cannot prevent committing actions that can be considered an implied contract, you might as well draft a formal employment contract between you and your employee. Once you have a formal contract, you would not worry anymore of unintentionally making an implied contract. Some of the things you need to include in a formal employment contract include:

  • Duties and responsibilities

  • Benefits

  • Compensation

  • Term

  • Termination Clauses

Remember to explain completely in the contract the terms and conditions that your employee needs to fulfill before he can avail employment benefits. An open communication between an employer and employee is the best way to prevent disputes and misunderstandings.