Employment Contracts

There are many advantages to having a written employment contract:

• Decreases the likelihood of a misunderstanding between the parties
• Specifies and records the terms of employment
• Provides reassurance that your employment is secure
• Provides investors or other interested parties comfort that the services of key employees are secure
• Makes clear the express terms and conditions of your employment

Disadvantages of Employment Contracts

The main disadvantage to entering into an employment agreement is the lack of flexibility in the employment relationship. Terms the employer otherwise might change in its discretion become fixed by the employment agreement. You might lose the ability to renegotiate the terms of your employment contract during the term of the contract.

Do I Need an Employment Contract?

If you decide you need a written employment contract, make sure to review it carefully with a lawyer's help. In some situations, handshake agreements may actually work to the benefit of an employee. Many of the terms that would be part of the contract are documented in paychecks and company employment manuals. These manuals typically outline things such as vacations, paid holidays and sick leave. There are laws designed to make sure employees are paid for overtime and protected from discrimination on the job.

But there are still times when it's critical to get your employment contract in writing, especially if you have a unique job or if you're going out on a limb by accepting a job. In addition to obvious issues like salary and employee benefits, you'll want the contract to cover specifics such as:

• Signing bonus. Your contract should set out how and when any signing bonus will be paid, as well as whether you're required to remain in the job for a certain period to keep the bonus
• Stock or ownership. If you're being offered stock options or other ownership interests, you'll want to tack down the terms, including the vesting period, your purchase price and opportunities for additional grants
• Relocation expenses. Nail down specifics on how your new employer will reimburse you and whether you're required to stay at the job for a certain period to keep your relocation reimbursement
• Expense allowance. An expense allowance can be better than paying expenses out of pocket and then getting reimbursed, because expense allowances may be tax exempt
• Term. Make sure the length of your employment is specified in the contract
• Termination. Grounds for termination of your employment as well as what benefits you are entitled to upon termination should be clearly stated in the contract
• Noncompete clauses. Employment contracts often include agreements that bar employees from competing with their former employers for a certain period after they leave the company
• Indemnification. If a competitor hires you, your new employer may want you to sign an agreement that protects them from any non-competition or proprietary rights agreements you had with your old employer
• Arbitration. Employers sometimes propose arbitration because it allows for a dispute to be decided by a neutral third party rather than by a jury. Arbitration also tends to be a quicker way to resolve disputes
• Attorney's fees. An "attorney's fees" clause can be a double-edged sword. Employers tend to be afraid of them because if an employee sues and wins, the employer has to pay for the lawyers on both sides. But, by the same token, an employee could also end up on the hook for all the attorneys' fees if he or she loses
• Integration. Keep an eye out for a provision that says your contract constitutes the entire agreement of the parties. Although it's standard language, it could have far-reaching effects, since any oral understandings or other agreements that aren't incorporated into the written document may not be enforceable

Employee Handbooks

Even if an employee doesn't have a written contract, statements in an employee handbook may be read as a contract between the employer and the employee. Absent a clear and prominent disclaimer, statements in an employee handbook that imply that an employee will only be fired for "good cause" are enforceable against an employer.

Whether an employee has a contract or not, an employer may be liable for the bad conduct of the employee. Provisions in a handbook pertaining to alcohol and behavior responsibilities during working hours and at employer events can be used against an employee for discipline purposes. Many employers require every employee to sign and acknowledge that they've received and understand the handbook when they're hired.

Questions for Your Attorney

• Is a no-compete clause enforceable in my state?
• What can I do if my employer violates the terms of my employment contract?
• What should I do if my employer refuses to enter into a written employment contract for my services?