Certified Human Resource Professional (CHRP) Practice Exam

Which of the following is true about employment contracts?

1. A contract must be in writing and signed by both parties to be binding.

2. A contract requires mutual consideration to be valid.

3. A contract and a letter of offer often contain different terms.

4. An indefinite-term contract is valid for the duration of the employment.

The correct answer is: A contract requires mutual consideration to be valid.

Mutual consideration is a fundamental principle in contract law, which states that for a contract to be valid, there must be an exchange of value between the parties involved. In the context of employment contracts, consideration typically involves the employee providing their labor and services in exchange for compensation, such as salary and benefits provided by the employer. This exchange ensures that both parties have a vested interest and, therefore, establishes a legally binding agreement. Recognizing mutual consideration is crucial because it differentiates enforceable contracts from mere offers or informal agreements, which may not stand up in a court of law. The requirement of consideration means that both parties must provide something of value, reinforcing the obligation of each party to uphold their end of the agreement throughout the employment relationship.