Companies use employment contracts to establish the terms of employer-employee relationships. In most cases, they spell out details about an employee's expected term or length of employment, compensation, benefits, and job duties. Employers also use such agreements to help protect trade secrets and confidential information, and to limit competition during and after the period of employment (in states where non-compete provisions are valid).

Employee contracts are commonly used when hiring executives, academics, and employees with specialized skills. Organizations sometimes use them to attract skilled workers by providing a written promise of job security and attractive benefits.

In other cases, businesses use employment contracts to ensure that workers remain for a specific period of time—especially if the cost of replacing an employee would be costly or time-consuming. While companies cannot force workers to remain on board, having such an agreement can establish penalties for breaking the employment contract or at least require that an employee give ample notice before leaving. This ensures that there is enough time for the company to find and train a replacement, if needed. Depending on the company, some employers also require that employees sign confidentiality agreements to prevent them from using company information in an inappropriate way—either for personal gain or with competitors after leaving the company.