Employement Contracts

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In labor rules, employment contracts are used to describe the rights and obligations of employers and workers. Both workers in the western world have job arrangements with their employers at the workplace (Brown and Ashenfelter, 2012). The contract has supplanted the old master-servant rules of the twentieth century, which neglected to explicitly define the privileges and duties of each side. The employment contract outlines the relationship between the employer and the employee in terms of both social subordination and economic dependency. Job contracts often govern elements such as obligations, roles, rights, and working conditions. Breach of such contracts has consequences and parties usually commit to keeping the terms of the contract until the end of a specified term. Contracts of employment eliminate any possible chances of exploitation that may occur between the employers or employees. This paper will focus on evaluating the various elements of establishing employment contracts, the various laws governing them and under what conditions they are unenforceable.

Elements of a Contract

For any contract to be valid, it must have certain elements that make it binding. The main elements include offer, acceptance, capacity, consideration, and competency and have been discussed in details below.


Offer is the promise to act or to refrain from acting made by the contracting parties, where they both make a return promise to do the same (Milgrom, 2011). However, some offers do not anticipate another promise getting returned in exchange but rather a performance of forbearance from taking action. Under the offer, there is an offeree and the offeror, where the offeror gives the offer and offeree accept or rejects. An offeree's power to accept gets created when the offeror communicates intent to enter a contract with specific and definite terms that gets conveyed to the offeree.


It entails the expression of assent to the terms of a contract by the offeree. Acceptance is made in the manner indicated or specified by the offer. However, where the offer specifies no method of acceptance, then acceptance may be done in a reasonable manner under the prevailing circumstances. For an acceptance to be considered valid, the offeree must be aware of the offer (Milgrom, 2011). In such a case, the offeree manifests an intention to assent, and the assent gets expressed as unconditional and as an explicit agreement to the underlying terms of the offer. Several contracts including employment contracts may specify the acceptance methods as either by phone, oral, written, or in person. However, others leave the acceptance method open, allowing the offeree to be able to make an acceptance in a reasonable manner.


Each party to a contract is obliged to produce something of value that will induce the other to enter into a contract. The exchange of value in a contract of employment and any other contract is the consideration. The value traded may contain a promise to carry out an act that one is not required to do legally or a promise to avoid doing something that one is legally entitled to do (Brown and Ashenfelter, 2012). Consequently, consideration must exist to make a contract of employment enforceable.

Contract formation under the Uniform Commercial Code (UCC)

The UCC does not require or specify a particular manner of expression for the contracting parties to enter a contract. Depending on the type of contract, UCC states that a contract could get made in any manner enough to show agreement including offer and acceptance. The revised version of the UC which got approved in 2013, allows for the formation of contracts through the interaction of electronic agents such as computer programs which can initiate a transaction without human review (Guest, 2014). Therefore, elements of employment contracts originate from general law and hence rules regarding some aspects might not be found in the UCC.

Competency and Capacity

To enter a contract, any natural person must possess the full legal capacity to be held liable for the duties and responsibilities they agree to perform. A minor, an intoxicated, and physically incapacitated person does not have the legal capacity to enter into a contract. Anybody under the age of eighteen or twenty-one becomes considered as a minor depending on the jurisdiction (Milgrom, 2011). Also, anyone who does not understand the nature and consequences of a contract they are entering into is considered by the law to lack mental capacity of forming a binding contract. For any contract of employment to be considered valid, both parties must possess the legal capacity to contract.

Common Law Governing an Employment Contract

Whenever an employer agrees to engage an employee, a common law employment contract becomes created regardless of whether it is written down or not. The common law guides the contract due to the following:

Contract Modification

For a contract to be modified under common law, deliberation is vital. Contract of employment embraces modification and contains considerations that must get used whenever there is need to modify an existing contract (Guest, 2014). Whenever any party wants to modify the contract, they have to present their considerations to the other party for such modifications to be guaranteed.


Under terms, the mutual law demands a sketch of the measure, performance, and time of work to be included in drawing a contract. Contract of employment contains such elements in its offer. Such makes the contract to meet requirements of common law and, therefore, it gets deduced that contracts of employment get governed by common law (Guest, 2014).

Approval of a Proposal with Diverse Terms

The mutual law makes it necessary that any alteration to a deal gets deliberated before dismissal and creation of a new deal. In the above scenario the mutual law also demands that the person who was the offeree before becomes the offeror. Employment contracts obey the mutual law in case of an offer alteration. The offer becomes new, and the new offeree is at liberty to choose to accept or reject (Guest, 2014). Such aspects of the common law that exist in employment contracts indicate that employment contracts are under the common law.

Unenforceability of Employment Contract

An employment contract becomes invalid under the following conditions:

Condition of Misinterpretation

In a case where either party reports that there was an incidence of misunderstanding or fraud in the process of negotiations, the contract of employment fails to be enforceable. For instance, if the employee reports that he or she misinterpreted some points about the offer or the general terms of employment, then the contact will be considered unenforceable (Milgrom, 2011).


It is the misinterpretation caused through silence. When an employer or employee fails to disclose relevant facts about the agreement or the relationship they intend to create, the contract will be unenforceable (Milgrom, 2011). However, for the contract to be considered unenforceable, the court will consider if the other party would have easily accessed the information. Therefore, it is the duty of the contracting parties to disclose any material facts and information that are involved in making contact.


To sum up, the establishment of employment-related contracts relies on the basic elements of a contract applied in other agreements. Hiring contracts are directed by common law and must conform to its requirements. However, as discussed above, certain conditions can make an employment contract invalid even if it meets the elements and requirement for the formation of a valid contract. Therefore, it is important to note that an agreement binds the contracting parties together and each party has a role to play to make the contract operational and fruitful. Also, although employment contract is viewed by many to be majorly protecting the employees from any exploitation by the employers, it is important to note that such contracts have equal protection of both parties.



Brown, J. N., & Ashenfelter, O. (2012). Testing the efficiency of employment contracts. Journal of political economy, 94(3, Part 2), S40-S87.

Guest, D. (2014). Flexible employment contracts, the psychological contract and employee outcomes: an analysis and review of the evidence. International Journal of Management Reviews, 5(1), 1-19.

Milgrom, P. R. (2011). Employment contracts, influence activities, and efficient organization design. Journal of political economy, 96(1), 42-60.

Seaquist, G. (2012). Business law for managers. San Diego, CA: Bridgepoint Education, Seaquist, G. (2012). Business law for managers. San Diego, CA: Bridgepoint Education,

December 28, 2022

Government Economics


Economy Workforce

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Employment Contract Workplace

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