Terms of Employment: Definition and Examples

What Are Terms of Employment?

Terms of employment detail the responsibilities and benefits associated with a job, as agreed upon by an employer and employee at the time of hiring. They define the work relationship and are sometimes known as an employment contract.

These terms, which may also be referred to as conditions of employment, generally detail job responsibilities, work hours, dress code, time off the job, and starting salary. They may also include information about benefits such as health insurance, life insurance, and retirement plans.

Although terms of employment may be agreed upon verbally, employees and employers normally sign written contracts, which makes their agreement legally official.

If you are an at-will employee, your employer can change the terms of employment, including your salary, hours, and worksite, at any time.

Key Takeaways

Terms of employment detail the benefits and responsibilities that an employee and employer agree to when an employee accepts a job.
Terms may cover matters such as salary, benefits (e.g., health insurance, life insurance, and retirement plans), company policies, and termination agreements.
Executives and workers with skills that are in demand generally have some bargaining power over their terms of employment.
The minimum terms of employment are set by the U.S. Department of Labor.
Terms of employment define the work relationship between an employer and employee.

How Terms of Employment Work

Most employers require professional and administrative employees, as well as executives, to sign a written employment agreement or contract that details the terms of employment.

The conditions of employment for hourly employees are often outlined in an employee handbook or company policy manual. In certain circumstances, terms may also be expressed verbally. Written terms, though, can protect both the employee and the employer.

In addition to the nuts and bolts of salary and benefits, terms of employment can deal with important issues such as dispute resolution, nondisclosure agreements, and grounds for termination, as well as the possibility of a notice of termination.

Job seekers with skills in high demand are often able to negotiate better terms of employment. Negotiations involving executive-level applicants will include terms relating to hiring managers and candidates.

Federal and State Oversight

Whether it's an executive position or an entry-level job, terms of employment are subject to state and federal guidelines.

In fact, minimum standards for terms of employment in the U.S. are set by the Department of Labor (DOL). These standards cover the minimum wage, overtime, the standard work week, mandated break times, and safety issues.

The DOL also governs employment laws in certain industries, such as agriculture, mining, and construction.

State laws may add additional benefits, rules, or rights regarding employment within state jurisdictions.

Important

Make sure that you read the entire employment contract offered by a prospective employer before you sign it. If you're unsure of any terms, it's a good idea to have an attorney take a look at it.

Special Considerations

At-Will Employment

Employment contracts are normally considered at-will in the U.S. This means that either the employer or employee can legally terminate the agreement at any time for almost any reason.

In other words, at-will employment allows an employee to be fired even if no terms of employment have been violated. In practice, however, employees with signed employment contracts generally have a degree of job security for the length of the contract as long as they do not violate any contract conditions.

When At-Will Doesn't Apply

Montana is the only state in which at-will laws don't apply. So employees can only be terminated for good reason.

The at-will rule also doesn't apply to individuals who are part of labor unions. These organizations help protect workers' rights by negotiating benefits and other employment conditions, including terms of termination.

Employees who are members of unions have set contracts and can't be terminated at-will, thanks to collective bargaining agreements.

Fast Fact

Employment laws protect workers from discrimination due to race, gender, or religion.

Examples of Terms of Employment

Terms of Employment Abroad

Most developed and developing countries have codified certain standard terms of employment.

Ireland passed a Terms of Employment (Information) Act which outlines rules covering a variety of workplace and labor topics.

Australia's Fair Work Ombudsman sets rules related to pay, leave, redundancy, entitlements, and more.

Compared to the U.S.

U.S. labor laws are less generous than those in other parts of the world. The European Union, for example, mandates that workers get at least four weeks of vacation every year.

In Finland, expectant mothers get paid leave at least six weeks before their due date, and 15 more weeks after the birth of a child.

Benefits like these may not be included in your next terms of employment, no matter how hard you bargain.

Why Are Terms of Employment Important?

They're important because they define how you must work and the benefits you can receive when you are hired by a company. It's essential that you review them carefully before signing or starting work because you'll be making a commitment to accept and abide by them.

Can Terms of Employment Change?

Yes, they can change. However, you have to agree to any changes made by your employer. Otherwise, such an action may be considered a breach of contract.

Can an Employee Improve Their Terms of Employment?

They can try to do so. A good time to improve terms is during the negotiation stage prior to becoming officially employed. Neither you nor your potential employer has signed any contract at that point, so terms are open to discussion. You can propose changes after you become an employee, but both you and your employer must agree to them in order for them to become valid.

The Bottom Line

Terms of employment are the terms that define the employer—employee work relationship and are the the conditions under which an employee must work. Depending on how valued an employee is, certain terms of employment may be subject to negotiation.

Terms of employment, which can also be referred to as conditions of employment or an employment contract, must meet minimum standards set by the federal and state governments.