Every employee has an employment contract. Even though an employee may be hired on an "at will" basis without anything being reduced to writing, there is still an oral contract in place that in most instances would be just as enforceable as a formal written agreement. The big difference between the two is that the terms of a written agreement tend to be easier to prove that those of an oral one.

When To Put An Employment Agreement In Writing

When it's clear from job descriptions and the terms of compensation that employees are being hired on an "at will" basis, it may very well make sense to hire them Most small business employees can be hired without the formality- or expense- of a written contract. But you'll want to consider negotiating a written contract when you're hiring:

• Top management
• Sales reps who work on a commission basis
• Independent contractor
• Someone for a newly-created position that's not addressed in your employee handbook

What To Include In An Employment Contract

While contracts vary depending on the industry and the particular employee, you'll definitely want to include:

Compensation and severance pay (if any)

The term of the contract, if it's for a specific time

A provision that the employment is "at will" if it's not for a specific time. This allows you to fire the employee at any time without cause.

If the contract is not on an "at will" basis, any specific grounds for termination should be spelled out

Nondisclosure clause. This will stop your employee from giving away trade secrets or using confidential data like customer lists for a competitor's benefit. This clause should be as detailed as possible, but also include a catchall phrase that covers a broad range of protected information.

Non-compete clause. This prevents an employee from joining ranks with your competition after leaving your company. In order to be legally enforceable, the terms of the non-competition should be as detailed as possible as to time, geographic range and type of business activity.

A detailed description of any stock options or other ownership interests the employee is acquiring

What happens when the employee leaves your company. Will he or she forfeit stock options or be forced to sell any ownership interest through what's called a "buy out agreement"? It's important to put these details in writing, to avoid a lawsuit later.

Arbitration Provision. One way to avoid the expense of going to court is to agree to arbitrate any future disputes with the employee. Arbitration is also generally much faster than formal court proceedings, so you're not stuck in limbo as to the outcome of the dispute. Through arbitation, an employer may also be able to keep the matter away from a jury, which could tend to be pro-employee.

If you're hiring for a newly-created position that's not covered in your Employee Handbook, you'll want to list the duties of the job.

Alternatives to Written Employment Contracts

It may not be necessary - or desirable - to draft a formal written employment contract if the details are otherwise already covered by:

Your written Employee Handbook

State law (as is often the case with working hours, minimum age of employees, working conditions and some benefits requirements)

If you're going to the trouble to put your agreement in writing, you'll definitely want the help of a local employment lawyer to guide you in the process.

Related Resources on Lawyers.com^sm

- Need a form? Access hundreds of Personal & Business Legal Forms that cover a range of legal needs including Non-Compete Agreement for Your State
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