Labor and Employment

Negotiating Employee Contracts

Every employee has an employment contract. Even though an employee may be hired on an at-will basis without a written contract, there is still an oral contract in place that in most instances is just as enforceable as a formal written agreement. The big difference between the two is written contracts are usually easier to prove than oral contracts. 

When to Put an Agreement in Writing

When it's clear from job descriptions and compensation terms that employees are being hired on an at-will basis, it may make sense to hire them without a written contract. The expense or formality may not be needed. Think about a written contract when you're hiring:

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

Employment Contract Terms 

While contracts vary depending on the industry and the particular employee, common terms include:

  • Compensation and severance pay (if any)
  • Length of the contract, if it's for a specific time
  • A term that the employment is at-will if it's not for a specific time. This gives you flexibility to fire the employee at any time without cause
  • If the contract isn't on an at-will basis, any specific grounds for termination should be stated
  • Nondisclosure clause. This stops your employee from giving away trade secrets or using confidential data like customer lists for a competitor's benefit. Draft this clause to be specific, but also include a catch-all phrase to cover a broad range of your business information
  • Noncompete clause. This prevents an employee from working for a competitor after leaving your company. To be legally enforceable, the noncompete clause needs to be detailed, including duration, business activity and geographic area 
  • A detailed description of any stock options or other ownership interests the employee receives
  • 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"? Including these details can avoid lawsuits later 
  • Arbitration provision. You can avoid lawsuits by agreeing to arbitrate future disputes with the employee. Arbitration is also generally much faster and costs less than formal court proceedings. An employer may want to avoid a lawsuit and a jury that may be pro-employee
  • If you're hiring for a newly-created position not covered in your employee handbook, list the job's duties 

Alternatives to Written Employment Contracts

It may not be needed or desirable to draft a formal written employment contract if the details are 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.

      Questions for Your Attorney

      • Do I need employment contracts for each job category in my business?
      • Is an employee handbook a contract if it doesn't state otherwise?
      • If a job candidate asks for a contract, should I agree to it, even if I don't normally use contracts for that position?
      • Have a getting hired question?
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