Handshake Deals vs. Written Contracts
Many small and growing businesses start the same way: trust is high, teams are small, and decisions move fast. When it comes to hiring, it’s common to hear things like:
“We talked it through and shook on it.”
“We’ve always done things informally.”
“We are friends/family — it’s fine.”
And for a while, it often is fine.
Handshake deals don’t usually come from bad intent. They come from optimism, relationships, and the belief that everyone is on the same page. The problem is that as businesses grow — or when circumstances change — what felt clear in conversation can quickly become unclear in practice.
This is where the difference between handshake deals and employment contracts really matters.
TL;DR
Handshake deals are built on trust, but employment contracts are built on facts. While informal agreements often start with good intentions, they break down when expectations change or memories differ. Written employment contracts protect both employers and employees by clearly setting terms from the start — and having them in place early is far less risky than waiting until a problem arises.
Why do so many businesses start with handshake deals?
In the beginning stages of business, you have so many things on your plate and putting together one more administrative task on your list feels like a big fat ‘NOPE’. Handshake agreements feel simple because they save time in the moment and may even help us avoid uncomfortable conversations around money, seniority, and separation.
As an entrepreneur myself, I get it. Formal contracts can feel too formal or unnecessary. Many employers assume that contracts only matter when things go wrong — and no one hires expecting that. But employment relationships are long-term, evolving, and impacted by real-life changes. That’s where informal agreements start to crumble…
Where things start to go wrong…
Most employment disputes don’t start with conflict — they start with misaligned expectations.
Common issues include:
Different understandings of compensation, bonuses, vacation time, or increases
Confusion around hours, flexibility, or remote work
Unclear expectations about role scope or performance
Disagreements about notice, termination, or severance
What one person remembers from a conversation may not match what the other person heard. Over time, memory fades — but expectations don’t. Without something written down, even well-intentioned employers and employees can end up frustrated or surprised.
What Employment Contracts Actually Do
Employment contracts are often misunderstood as being one-sided or ‘too legal’. In reality, good contracts don’t exist to create a power differential — they exist to create clear expectations and protection for both sides.
A well-drafted employment contract:
Clearly outlines terms of employment from the start
Sets expectations around compensation, hours, and responsibilities
Explains what happens if circumstances change
Reduces risk and uncertainty for both employer and employee
What contracts don’t do is remove trust or flexibility. In fact, they often make it easier to have honest conversations later because the baseline expectations are already clear.
Why Waiting Is Riskier Than It Feels
One of the biggest misconceptions is that contracts can wait until a business is “bigger” or more established. In reality, the risk is often highest when organizations are small and informal.
Without contracts:
Employers may be exposed to unexpected termination or severance obligations because there is lack of clarity on position level, compensation, seniority, and termination process
Employees may feel blindsided when decisions are made within the organization
Disputes are harder — and more expensive — to resolve because no foundation of expectations have been set
By the time a problem arises, it’s usually too late to rely on what was meant or intended.
Making the Shift
Moving from handshake deals to employment contracts doesn’t mean changing your culture or becoming impersonal. The key is how contracts are introduced.
Effective employers:
Explain the purpose of contracts as clarity, not control
Use plain language where possible
Invite questions and discussion
Align contracts with how work actually happens
Please keep in mind that employment contracts offered after hire (ex. You want to introduce employment contracts to your employees who have been with you for 2 years) needs to have fresh consideration, where it is to the agreement and benefit of both parties.
The Truth Is…
Handshake deals are built on trust — but employment contracts are built on facts. Both matter, but only one stands up when expectations change, memories fade, or circumstances shift.
Having employment contracts in place isn’t about assuming the worst. It’s about setting everyone up for success from the start.
If you’re hiring employees without written contracts — or relying on outdated or informal agreements — now is the time to address it. Clear, well-structured employment contracts are one of the most practical steps you can take to protect your business, support your employees, and avoid issues down the road.