Employment Contracts

Types of Personal Services Agreements: Employment Agreements and Independent Contractor Agreements

There are two primary categories of personal services agreements: employment agreements and independent contractor agreements. The criteria for distinguishing between these types of work relationships in the common law include the degree of the worker's integration into the operations of the employer's organization, the scale and scope of the worker's service, whether the worker uses his or her own tools and materials, the number of employers the worker serves, whether the worker risks a financial loss in the relationship, the employer's degree of oversight and approval for the work product, and, especially, whether the employer retains the right to control the manner and pace of the work.

If applying these common-law factors supports the conclusion that the provider of personal services is an independent contractor, then the parties are acting at arm's length and are truly separate legal entities. The legal rules governing their relationship would be the general rules of contract. However, if applying the common-law factors supports the conclusion that the provider of personal services is an employee, then the relationship constitutes employment in the strict sense, with concomitant common-law duties of agency owing to the employer, including fiduciary duties of care, loyalty, and good faith. To sustain a practicable scope for this analysis, the remainder of this discussion will deal with the employment relationship.

Types of Employment Contracts: Express and Implied Contracts

An employment contract is a personal services agreement between an employer and an employee that is [Page 705]legally enforceable. The two typical forms of contract in the common-law tradition are express contract and implied contract. An express contract is one in which the parties enumerate the terms of their agreement in ways that allow it not only to be clear for practical purposes but also to be legally sufficient and enforceable. For example, an express contract should specify the identities of the parties, their respective performance commitments, their respective consideration, the timing and means for payment, the standards for assessing the sufficiency of the work product, the term of service, the governing law(s), the procedure(s) for giving notice of termination, and the means for adjudicating disputes.

In addition, the formation process for an express contract must satisfy legal standards for the document to be enforceable, including the legality of the subject matter, the mental competency of the parties, the real or apparent authority of the parties, and the legal majority of the parties (typically the age of 18 for natural persons). A contract may be in writing or oral, but it is prudent—and in many cases legally necessary under the statute of frauds in the applicable jurisdiction—to execute it in writing, particularly when the term of service exceeds 1 year from the date of the agreement.

...