Could Employment Contracts Make Work Better?


Back in the early days of Talent Anarchy when we were speaking about generational diversity in the workplace, we talked a lot about how the employee-employer contract has been broken and all but vanished.  The contract we were talking about wasn’t formal, but rather implied and part of the fabric of what it meant to work for someone.  In the old days, if you showed up consistently and gave an honest days work, you were taken care of by the company–not just today, but for your entire career.  Companies were loyal to people and people were loyal to companies.

Part of why that contract worked between employees and employers was that the nature of work at that time made it much more challenging to move from one job to another (if you were a machine operator in one place, that didn’t necessarily transfer to being a machine operator in another because equipment might be very different) and, for the same reason, it was very challenging for companies to replace people when they left.  Also, the availability of information about other employers and other employment options was much less available that it is today.  Ignorance can be blissful.

But, today, things are very different.  We live in the era of knowledge and design work which means we  are the means of value creation and we can easily move from one company to the next.  Plus, you can’t log into your computer these days without being confronted with information about jobs and opportunities.  Anyone with an internet connection can look up salary information to determine how much other people in other jobs are making.  All this means that people are more likely and willing to move.  Companies know this and they also know that can find other people to fill your role.  This relationship is a mess.

I wonder how much of a negative impact this talent mobility has had on organizational and individual growth and productivity.  Loyalty is dead and gone–that’s pretty clear.  Our businesses and our employment relationships aren’t built on trust, they really can’t be.  Employees know they can be laid off at any moment if the business needs to maximize profit.  Companies know that employees will leave on a moment’s notice for a few more bucks or an extra week of vacation.  The relationship has become pretty dysfunctional because both parties feel vulnerable and frankly, frustrated.

So, this got me to thinking about how we might fix this.  And I’m wondering if it isn’t time to introduce actual formal, legal employment contracts as a part of the employee-employer relationship.  If every employee had to negotiate a contract with their employer upon accepting employment, perhaps we could start laying the foundation for trust again in this relationship.

Here’s how I imagine this could work.  The “offer” part of the recruitment process is replaced with contract negotiations.  The company agrees to a contract term for the employee that includes:

  • Guaranteed term of employment which could range from 1 month to 10 years.
  • Compensation and benefits package
  • Performance expectations of the employee
  • Training and Development Plan
  • Promotional opportunities based on achievement of performance and development targets.
  • Penalties for violation of the contract

The idea being that both parties lay out in great detail the expectations and length of their relationship before it even starts.  Obviously, there may be other considerations involved, but because it is a legally enforceable agreement, both parties would be pretty focused on making sure it’s clear.

Here is what I think this approach could do:

  • Creates some comfort for both sides because they are sharing risk and making a commitment to one another for a period of time and that commitment is legally protected.
  • Reduces tension in the relationship because both parties are clear on expectations.
  • Takes out uncertainty over compensation because it’s pre-defined.
  • Increases engagement because it removes the “should I stay or should I go” mindset for employees.  When you are locked in, you have to find a way to make it work so you are naturally more engaged.
  • Puts pressure on the organization to be a place that people are willing to make a long term commitment to.

The model that keeps coming to mind for me is the military.  When you make a decision to enlist, you are making a long term, contractual agreement to serve.  You remove quitting as an option which means that no matter how much it might suck at times, you find a way to get through it and make it work.  The military is effective for a lot of different reasons, but I think that this contract is certainly part of it.

Why couldn’t this also work in business?



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