Am I required to issue Employment Contracts?

Labor Law Business Hiring 5 min read , November 14, 2020

Are you required to issue employment contracts? Is there a law being violated if you had an employee start and there was no contract? In this article, we tackle this question.

While I was delivering a workshop on labor law, a student raised his hand and asked this question.

Atty, I was in a hurry to fill a position at my company. I had my employees start immediately once they passed my interview. A year passed, and some of them came up to me complaining. They said that I was violating the law by not regularizing them. I said, "What do you guys mean?" They clarified that I failed to turn them from probationary to regular because they weren't issued regular employment contracts. Is this correct? Did I violate the law?

I'd like to share what I said to this student so that more of you can learn from the answer.

Stacked books and journal
Photographer: Mikhail Pavstyuk | Source: Unsplash

What does the law say about the employment contract?

First off, let's start with a few fundamentals. I want to question the assumption that the issuance of an employment contract is required.

It's not required. In fact, an employee can start working for you without any contracts and it would make no legal difference in terms of your employer-employee relationship. You would still have the same obligations and responsibilities to each other. What governs here is the fact that you have commenced a working relationship.

If I don't issue the contract, am I exempted from obligations?

Don't make the mistake that if you don't issue a contract, you're excused from the legal responsibilities just because you didn't issue a contract. I heard a person once say that he didn't have to bother with mandatory benefits such as SSS, Philhealth and Pagibig because his employees were not "really" employees just because they are working without contracts.

Nope, my friend. The law is tilted towards the protection of employees. So, even in the absence of the contract, it would look towards your actual relationship with them. In case there is an employer-employee relationship there, then it doesn't matter whether a contract is present. You still have to fulfill the obligations of an employer.

Photographer: Sebastian Herrmann | Source: Unsplash

So what's the big deal about contracts?

You may be thinking, "Attorney, if the contract isn't really required and I can still commence an employer-employee relationship without it, then why bother issuing it?"

Well, that's true. You can probably live out your life as an employer without it, but from my experience, there 3 advantages when you issue the contract nonetheless.

Setting clear expectations from the start

First, issuing the contract enables you to set expectations from the start of your relationship with them. In the contract, you may include certain provisions such as:

  • What their position in the company is;
  • Their scope of responsibilities;
  • Their salary and benefits;
  • Prohibitions and restrictions;
  • Special limitations such as non-compete and non-disclosure;
  • and so on...

The employment contract is the proper place to have all of these. You can't assume that your employees all understand these things. Also, you may have special circumstances that make your company different from other businesses. For example, you require all employees to undergo a leadership training program before regularization or you require a 60-day turnover (instead of the usual 30-day notice) in case of separation from the company. Again, the right place to put these circumstances is the contract.

I advise students and clients that it's only fair to let your employees know what to expect if they join your team. That way, when they jump on board, you know that it was an informed decision on their part.

Easier to prove what is expected of them

In addition, if a conflict arises, then you'd be so glad to have the contract in place. Since the expectations are set there, and the employee signed them, it forms a binding contract and the employee can't deny their responsibilities under that contract.

There have been cases that an employer sets an obligation, and if the employee fails to follow the obligation, they defend themselves by saying that they weren't aware of that requirement.

They say, "I didn't even know that I was required to do this! How can I follow something I wasn't aware of?" The legal response for defenses like this is presenting the signed contract. Their signature on the document leads to the conclusion that they knew about the contents of the document.

Memorializes your relationship with them

The final reason that I suggest issuing contracts is very practical. It puts a time-stamp on the progression of your relationship with them.

Suppose you have an employee working with you for 10+ years. Suddenly, you have to terminate them based on authorized causes (redundancy). You're then obligated to give them separation pay which is based on the number of years served with the company. If you don't have the contract in place, it may be difficult to remember exactly when this employee started.

Or suppose that your employee is being considered for promotion. You want to get a sense of his professional history. How long has he been with this department? With this position? How long has he been rank and file vs. supervisory?

Save yourself the hard task of reconstructing the history of your employees. Issue contracts when needed so you don't have to remember all these dates.

Photographer: Cytonn Photography | Source: Unsplash

What's my takeaway?

So to summarize: first, issuing employment contracts are not required. Don't worry about it. Second, considering that it's not required, I still highly recommend that you issue it nonetheless. Why? First, you're able to set proper expectations with your team. Next, you're able to generate evidence that they are aware of these requirements. Finally, you are able to document their progression within the company for records purposes.

Hope this helped!

Hope this article was able to teach you more about employment contracts. This topic usually gets asked when I discuss discipline and termination issues with employers.

I am planning to create more materials to help with discipline issues in the future, but I need your help in sorting out what questions matter. There may be other stuff that you're grappling with but I missed. I want to help. I'm offering the chance to answer your questions in future materials and courses.

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