Are employment contracts really necessary?

They would not be if everyone were honourable and trustworthy. But sadly, human nature (with a small number of exceptions) appears to be driven by the desire to get max profit for min outlay. So contracts are a way of binding both parties legally and to ensure fair and equitable arrangements are honoured. I would say they are essential to the smooth running of a community and a business, for all parties involved. Hope this helps. BTW be aware that I'm a psychologist, not a business expert, so I would not be able to offer you business, accounting or economics tutoring (in case you're looking for that. I was just intrigued by your question :-)

A written Contract of Employment is necessary to protect both the Employer and the Employee. Though many contractual items can be implied, it is better to have them written down in order that they can be referred to should any discrepancies arise from either the Employer or Employee. This doesn't stop all arguments but it can prevent most.

I agree with mandy, like other laws and contracts they are in place to protect the Employer and the Employee in order to state clearly what is expected from both parties and to help both parties if either have a problem with the arrangement

Contracts provide protection for each side of a transaction against the other. I can think of three cases where contracts are rarely used. 1. Where writing a contract is very difficult, this may be the case where specifying an employee’s value is difficult. For example, employees are often paid bonuses alongside their regular wages in order to reward them for value they have created which is not contractually specified. 2. Where the protection provided by the legal system is good enough to make a contract of limited use, this is the case when you buy goods; in a sense the vendor is employed by you to provide you with the purchased item. If it doesn’t meet your requirements it can be easily returned. 3. Where parties have strong incentives not to disappoint the other, for example when reputation is important, such as hiring a family friend to do some work. A lot of interesting issues arise from contract specification and a large literature of material exists on the topic en.wikipedia.org/wiki/Contract_theory. In short, contracts are needed where protection is required.

Yes. That's for the employee's benefits too. And so that the employer and employee would have a unbeatable partnership in their work. The employee will not apply if he wants and leave whenever he wants.