Why Employment Contracts are Important in Europe?

Last updated: 1 June 2023

When US businesses plan to expand their operations in Europe, one of their primary concerns is to comprehend the local labor laws, especially dealing with the necessary documentation. One of the most important documents when it comes to hiring in Europe is the employment contract between parties. It unites all important and mandatory parts of the deal/agreement between the employer and employee.

What is an employer contract?

An employment contract is a legally binding agreement between an employer and an employee that outlines the terms and conditions of the employment relationship. It establishes the rights and obligations of both parties and serves as a reference point in case of any dispute or misunderstanding.
The employment contract typically includes details such as the job description, working hours, salary, benefits, notice period, and termination procedures. Some parts of it are mandatory in almost every European country, like job description, duration of the contract, working hours and some may vary.
It may also contain provisions regarding non-compete and confidentiality clauses, as well as any other applicable terms and conditions that are specific to the employer or the industry.
Employment contracts may be written or verbal, but in most countries, written contracts are mandatory. An employment contract is an essential document that protects both the employer and the employee and ensures that the employment relationship is conducted in a fair and transparent manner for both sides.

Who needs to have an employment contract in Europe? 

In general, any person who works for an employer and receives a salary or wage in exchange for their work is considered an employee and should have an employment contract. This includes full-time and part-time workers, temporary workers, and fixed-term contract workers.

In some European countries, specific rules may apply to certain types of workers, such as freelancers or independent contractors. In these cases, the terms of the agreement may differ from those of a traditional employment contract.  
Employers in Europe are required by law to provide employees with a written employment contract within a certain timeframe, and the contract must comply with local labor laws and regulations.  

Why are employment contracts in Europe important?  

Employment contracts in Europe are important for several reasons:  

  1. Employment contracts provide legal protection for both the employer as well as the employee(s). They define the rights and obligations of both parties, and in case of a dispute, the terms of the contract can be referred to for resolution.  
  2. Employment contracts outline the major terms of employment. This clarity helps avoid misunderstandings or disagreements between employers and employee(s).  
  3. In Europe there are many laws and regulations that govern employment. Employment contracts ensure that both employers and employee(s) comply with these regulations, including minimum wage laws, working hour limits, and employment protection laws.  
  4. In some European countries and in some industries, collective bargaining agreements between employers and trade unions are common. Employment contracts help to ensure that the terms agreed upon in collective bargaining agreements are properly reflected in individual employment contracts.  
  5. Employment contracts can include clauses that protect an employer's confidential information and intellectual property. This helps to ensure that employees do not share confidential information or use company resources for personal gain.

How is it that a job offer on it’s own is not enough, like in the US?  

Employment contracts in Europe and job offers in the US have some similarities but have some important differences as well. Both constitute enforceable agreements between the employer and the employee, but in Europe, written employment contracts are typically required by law, while in the US, job offers can be verbal or in writing.
The second important difference is that employment contracts in Europe generally include more detailed terms and conditions than job offers in the US. For example, European employment contracts typically specify working hours, notice periods, and benefits, while US job offers may focus on salary and job duties.

Third, in the US, job offers are often more customizable and negotiable than European employment contracts, which may be subject to strict labor laws and regulations. In addition to that, in Europe, collective bargaining agreements are more common, where unions negotiate on behalf of workers to establish industry-wide terms and conditions that are then incorporated into employment contracts. In that case, the employment contract needs to follow the union agreement and regulations that follow it, so the option for customization gets even smaller.
Last, in the US, many employment relationships are considered "at-will", meaning that either the employer or employee can terminate the relationship at any time, for any reason. In Europe, termination is typically subject to specific grounds and procedures outlined in the employment contract. 

Differences between the US and Europe in employment  

Employment contracts are important in Europe due to the specific legal and regulatory frameworks that exist in European countries. European employment laws tend to provide greater protection for employees compared to those in the United States, which often rely more on the principle of “at-will” employment.  

In Europe, employment contracts are mandatory by law and include many provisions that ensure workers' rights and interests are protected. These provisions can cover topics such as the duration of the employment, the job duties and responsibilities, the salary and benefits, notice periods for termination, and more.

Additionally, many European countries have strong labor unions, which can negotiate collective bargaining agreements that set employment standards for entire industries. These agreements can be enforced through individual employment contracts.

On the other hand, in the US, employment contracts are not mandatory by law, and many companies do not use them. Instead, many US companies rely on “at-will” employment, which means that either the employer or the employee can terminate the employment relationship at any time, with or without cause. The recent pandemic and the current shortage in the labor market are rapidly changing the need for a different approach in the US.  

Overall, the differences in legal frameworks and cultural norms between Europe and the US may explain why employment contracts are more important in Europe than in the US, and why some US companies may not be aware of their significance in a European context. 

About EuroDev

EuroDev, established in 1996 with offices in The Netherlands, has a single, defined purpose to help mid-sized North American companies expand their business in Europe. We have created a proven, successful business development model and since our founding, have partnered with over 500 companies to help them define and meet their European business goals. Services provided include Sales Outsourcing, HR Outsourcing, and Digital Marketing.

Disclaimer: While we strive to provide accurate and timely information, please note that HR policies and regulations can change frequently. It is recommended that you seek guidance from our HR consultants to ensure that the data presented here is current and accurate.

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