I'll try to answer your questions in as generic a way as I can, and avoid repeating the specific table structures as in the previous responses. Generally speaking, cyclic relationships between your entities are not a bad thing...on the contrary, they are quite common:
There are many Projects
Projects have Employees
Projects have Tasks
Employees are assigned some Tasks
While a Project has Employees...and Employee also has a Project (or, possibly many Projects if an employee can work on more than one project at a time). From a database perspective, when you create a foreign key, that "circular" relationship exists whether you want it to or not.
The more important question is, from a conceptual perspective, does it matter if an Employee knows what project(s) it is a part of? While it is probably very important that a Project know what employees are working on it...it may not be important that an Employee know the project its working in. This is what is called "Navigability", and unlike our database structure, we CAN control this with our classes. A Project object would have a collection of Employee objects, but the Employee object does not necessarily need to have a Project property (or collection of Projects.)
There is no canned answer that I can give you regarding navigability. Thats usually subjective, and depends on the needs of your business. If the business that your modeling has the concept of an employee knowing which projects they are working on, and that knowledge is important to completing the processes your business logic will perform...then you need that circular relationship. Same goes for navigability between employees and tasks, projects and tasks, etc.