The Purpose of an Employment Contract

An employment contract is the framework that governs the relationship between an employer and an employee. It explains what work will be performed, how the employee will be paid, what standards apply and how either party may end the relationship. Although many people associate a contract mainly with salary, its purpose is much broader.

A clear contract helps both sides understand their obligations before work begins. It can reduce misunderstandings, support fair treatment and provide useful evidence if a disagreement later arises. In Kenya and elsewhere, employment rights may come from legislation, collective agreements, workplace policies and court decisions as well as from the written contract. The contract must therefore be read as part of a wider legal framework, not as permission to remove statutory rights.

What is an employment contract?

An employment contract is an agreement under which one person performs work for another in return for payment, usually within an organised working relationship. The employee generally works under the employer’s direction and control, while the employer accepts responsibilities such as paying wages and providing lawful working conditions.

The agreement may be written, oral or partly implied, depending on the law and circumstances. However, relying on an informal understanding creates avoidable risks. People may remember discussions differently, and important details such as working hours, leave, notice or confidentiality may never have been properly agreed.

A written contract is not valuable merely because it has signatures. Its value comes from accurately recording the terms of the relationship and making those terms accessible to both parties. A contract that is vague, contradictory or unlawful may create as many problems as it solves.

The main purposes of an employment contract

1. To identify the parties and the role

The contract should make clear who the employer is and who the employee is. This matters particularly where a person works for a business that operates through branches, subsidiaries, contractors or a group of related companies.

It should also describe the role. A job title alone may not be enough, because titles can mean different things in different organisations. A useful description explains the main duties, reporting line, work location and any reasonable responsibilities connected with the position.

For example, a contract for an accounts assistant might refer to recording transactions, preparing routine reports, maintaining financial documents and supporting authorised reconciliation work. It need not list every small task, but it should provide a realistic picture of the job.

2. To establish payment and benefits

One of the most important functions of a contract is to state how the employee will be paid. This may include:

• the basic salary or wage;
• the payment cycle and usual payment date;
• commissions, bonuses or performance-related payments;
• allowances, such as travel, housing or communication allowances;
• benefits in kind, such as medical cover or meals where applicable; and
• lawful deductions and the circumstances in which they may be made.

The wording should distinguish guaranteed pay from discretionary benefits. A salary is normally different from a bonus that depends on eligibility, performance, business results or management approval. If a payment is important to the employee’s decision to accept the role, its conditions should be stated clearly rather than left to assumption.

Employees should also check whether the stated amount is gross or net. A gross figure is before lawful deductions, while a net figure is the amount expected after deductions. The exact deductions will depend on the applicable law and the person’s circumstances.

3. To clarify working time and place of work

A contract helps establish normal working hours, working days, rest periods and the expected place of work. It may also address shifts, overtime, travel, remote work or hybrid arrangements.

This is important because availability affects a person’s family responsibilities, transport arrangements and other commitments. An employee who accepts a role based on regular daytime hours may reasonably need to know if night shifts, weekend work or frequent travel are part of the position.

Flexibility clauses should be read carefully. A clause allowing reasonable changes to working arrangements does not automatically mean that an employer can make any change, at any time, without considering the contract, applicable law and the circumstances of the employee. A broad clause should not be treated as a complete answer to every workplace change.

4. To set out rights and responsibilities

Employment is a continuing relationship, so both parties need to understand what proper performance looks like. The employee may be expected to perform duties competently, follow lawful and reasonable instructions, protect confidential information, care for company property and comply with relevant workplace procedures.

The employer may be expected to pay agreed remuneration, provide a safe and lawful workplace, respect employee rights, keep appropriate records and apply workplace rules fairly. Some of these responsibilities may arise directly from legislation even if the contract does not repeat them.

A contract can also refer to policies dealing with matters such as health and safety, information security, harassment, disciplinary procedures, conflicts of interest and use of company equipment. Policies should be available to employees and should not be used secretly or inconsistently.

5. To explain leave and other statutory entitlements

A contract commonly records annual leave, sick leave, maternity or paternity-related leave, public holidays and other forms of absence. The precise entitlements depend on the law applicable to the employment relationship and, in some workplaces, a collective agreement or more favourable organisational policy.

Contractual wording should not be interpreted as reducing a minimum legal entitlement. For example, if the law provides a minimum level of leave or protection, a clause offering less may be invalid or unenforceable to that extent. Employers should review contracts when legal requirements change, while employees should seek clarification where the written terms appear inconsistent with the law.

6. To provide a process for discipline and complaints

Workplace disagreements are easier to manage when the parties know the expected process. A contract or incorporated policy may explain how concerns are reported, how misconduct is investigated, whether the employee will have an opportunity to respond and how an appeal may be made.

This does not mean that an employer must accept every allegation or that an employee can never be disciplined. It means that decisions should be based on a fair process and relevant information. A disciplinary clause should be read together with applicable employment legislation and principles of procedural fairness.

Employees should also know where to raise concerns about unpaid wages, harassment, discrimination, unsafe work or other workplace problems. A clear reporting route can help resolve issues early, although it should not prevent a person from using lawful external remedies where appropriate.

7. To regulate the end of employment

Another major purpose of an employment contract is to explain how the relationship may end. It may cover resignation, notice, payment in lieu of notice, expiry of a fixed-term contract, retirement where relevant, redundancy, incapacity and dismissal for misconduct or other lawful reasons.

These are distinct situations. A resignation is initiated by the employee. A dismissal is initiated by the employer and may raise questions about reason and procedure. Redundancy usually relates to the employer’s operational needs rather than the employee’s misconduct. Treating all forms of termination as if they were the same can lead to serious mistakes.

The notice period should be clear, but notice is only one part of a lawful termination. The employer may also need to provide a valid reason, follow a fair process, make required payments and issue relevant records. An employee who receives a termination letter should check the stated reason, effective date, notice arrangements and any available internal process.

Why clarity matters in practice

Ambiguous wording creates uncertainty. Consider a sales employee whose contract states that they will receive a “commission based on sales” but does not explain whether commission is calculated on orders, invoices, payments received or returns. A disagreement is likely once customers pay late or cancel orders.

Similarly, a contract stating that an employee may be transferred “as required” does not necessarily answer every question about relocation. The parties may still need to consider the type of work, distance, costs, timing, contractual limits and legal requirements.

Good drafting uses plain language and separates different issues. It states figures, dates, procedures and conditions where these are important. If a document refers to a staff handbook or commission plan, the employee should be able to access the version that applies and understand whether it is contractual or merely guidance.

What an employee should check before signing

1. Identity and role: Confirm the legal name of the employer, job title, main duties, reporting manager and normal work location.
2. Pay: Check the salary or wage, payment frequency, gross or net wording, allowances, commission conditions and benefits.
3. Working arrangements: Review hours, shifts, overtime, travel, remote work and any probationary period.
4. Leave and absence: Look for annual leave, sick leave, family-related leave and the procedure for requesting time away.
5. Standards and restrictions: Understand confidentiality, intellectual property, conflicts of interest, use of equipment and any post-employment restrictions.
6. Termination: Check notice periods, disciplinary provisions, fixed-term expiry wording and procedures for raising concerns.
7. Documents referred to: Ask for every policy, schedule or benefits document incorporated into the agreement.

Questions should be asked before signing, not after a disagreement develops. If a term is unclear, the employee can request a written explanation or proposed amendment. Keeping a copy of the signed contract and related correspondence is also important.

What employers should do when preparing contracts

Employers should use contracts that match the actual role. Copying a generic template without reviewing it can produce conflicting job duties, incorrect pay arrangements or clauses that do not reflect the organisation’s practice.

The employer should identify which terms are contractual and which documents are policies that may be updated. It should also ensure that the contract respects minimum legal rights, avoids discriminatory wording and does not promise benefits that the organisation cannot administer consistently.

For a small business in Kenya, for example, a practical contract may be more useful than a lengthy document filled with unexplained legal language. It should still cover the essential terms, statutory obligations and workplace expectations. Professional legal advice is particularly sensible where the role involves senior management, sensitive intellectual property, international work, commission schemes or complex termination arrangements.

Contract, policy and law: how they differ

These three sources of workplace rules should not be confused:

• Law establishes mandatory standards and legal rights. A contract generally cannot lawfully remove a minimum protection.
• The employment contract records agreed terms, such as role, pay, hours, notice and benefits.
• Workplace policies provide operational rules and procedures, such as how leave is requested or how information systems may be used.

A collective bargaining agreement may add another layer, particularly where employees are represented by a trade union. When documents conflict, the parties should not simply rely on whichever wording appears most convenient. The applicable legislation, the status of each document and the circumstances of the dispute must be considered.

Changing an employment contract

Employment relationships often change. An employee may be promoted, transferred, given new duties or moved to a different pay structure. A change should be discussed and recorded rather than imposed informally where it affects an important term.

A written variation can state the effective date, the term being changed and the provisions that remain unchanged. Both parties should retain the updated document. If a proposed change is substantial or disputed, legal advice may be necessary before it is accepted or implemented.

Employers should also avoid relying on a contract clause as though it removes the need for consultation or fairness. Employees should avoid signing an amendment they do not understand simply because it is presented as routine.

Applying This in Practice

When reviewing an employment contract, use a three-step approach. First, identify the practical questions: What work will I do? Where and when will I work? How and when will I be paid? Second, locate the relevant clauses and compare them with any referenced policies. Third, check whether the terms are consistent with applicable employment law and with promises made during recruitment.

If there is a disagreement, gather the contract, payslips, emails, policy documents, attendance records and relevant letters. Write down the issue in specific terms—for example, “the agreed commission was not included in the payment for March”—rather than making a general accusation. Raise the matter through the appropriate workplace process and obtain qualified advice where the issue concerns termination, discrimination, serious financial loss or uncertain legal rights.

Key Takeaways

• An employment contract records the practical terms of the working relationship, not just the employee’s salary.
• Clear wording about duties, pay, hours, leave and workplace procedures reduces avoidable disputes.
• Contractual terms operate alongside employment law, workplace policies and, where applicable, collective agreements.
• Notice provisions do not by themselves make every termination lawful; reason, procedure and required payments may also matter.
• Employees should read referenced documents, ask questions before signing and keep copies of all employment records.
• Employers should use accurate, lawful contracts and record significant changes in writing.