Implied Employment Contract

Definition

The term implied employment contract refers to an agreement an employee infers from comments, past practices, training manuals, and employee handbooks.  Since all employees work under some form of an implied contract, employers will attempt to regulate this information to maintain control over the terms and conditions of employment.

Explanation

Also known as an implied contract of employment, an implied employment contract is one that continues to evolve over time.  While some employees may have written contracts, all employees work under some form of agreement with their employer.  Implied contracts are formed throughout an employee's career through both written materials as well as verbal communications.

Employers will attempt to regulate the content of an implied employment contract, since this allows them to control the conditions under which they can terminate an employee.  At the extreme, an employee may infer they have a lifetime right to employment.  The list below outlines some of the more common ways an implied contract forms:

  • Job Interview:  includes statements made during the interview process that may promise employment as long as the job candidate does not perform poorly or that all employees can expect to receive an annual increase in pay.
  • Offer Letters:  all information appearing on an offer letter is part of the implied employment contract.  Employers will typically outline the contingencies of the offer as well as the conditions of continuous employment, which includes employment "at-will," along with a definition of the term.
  • Employee Handbooks / Training Manuals:  includes information appearing in documents describing the employer's benefits programs, statements of company policies, as well as supervisory and other training materials.
  • Past Practice:  includes undocumented customs and practices that have become a "tradition" in the workplace such as special incentive programs, profit sharing, and holiday bonuses.
  • Promotions: the dialog between an employee and their manager is usually very positive when the employee is promoted.  Anything promised during these conversations, such as future promotions, can become part of an implied employment contract.

Related Terms

termination benefits, one-time termination benefit, special termination benefit, constructive discharge, employment contract, job offer letter