Employment agreements are essential to protect your business and your employees. These agreements create legal obligations and represent the contractual relationships between employers and employees. A word of caution, however: Not all employment agreements are the same. An employment agreement could do more harm than good if it is not carefully crafted for your specific situation. When hiring a new employee, it is vital to ensure that your agreement accurately captures the expectations of both parties. Here are a few guidelines to keep in mind when creating an employment agreement for a new hire.
- Job Description. Every employment agreement should outline the employee’s responsibilities. What title will your new hire hold? Are there any parameters governing the tasks the employee is expected to carry out?
- Employment Classification. Guard against allegations of misclassification by clearly identifying the new hire as an employee. Additionally, review your company’s practices to ensure that they align with Internal Revenue Service and Department of Labor guidelines for the proper classification of employees. Communicate this classification and its implications to your new hire to avoid any potential misunderstandings.
- Compensation. This is a critical component of an employment agreement, and if not handled appropriately, it could be the basis for a lawsuit. Clearly state how much the employee will be paid and at what intervals. Will the employee receive payments bimonthly or weekly? Is there a predetermined structure for raises and incentive bonuses? Ensure that these details are discussed, agreed to, and documented at the beginning of the contractual relationship.
- Benefits. Your employment agreement should describe any additional benefits your employee will receive, as well as the employee’s responsibilities with respect to those benefits.
- Termination Clause. An often overlooked but essential part of any employment agreement is the termination clause. A termination clause explicitly states the grounds on which either party can terminate the agreement. For employers who hire employees on an at-will basis, it is critical that the termination clause state that an employee may be terminated at any time for any reason at all.
- Dispute Resolution. As an employer, carefully considering how you would like potential disputes to be resolved could save you significant time and money if a problem were to arise between an employee and the company. Determine the extent to which you would like to use alternative dispute resolution options like arbitration and mediation and include it in the agreement.
- Confidentiality and Intellectual Property Matters. Employees have unique access to the trade secrets of their employers. Likewise, additional forms of intellectual property may be created over the course of the employment. Use this portion of your employment agreement to legally require your employees to maintain confidentiality with respect to matters that are unique to your business. In addition, ensure that you contractually assert your ownership of any intellectual property created on your behalf during the term of employment.
- Applicable Law. Your employment agreement should also indicate which state law and jurisdiction governs the agreement. This is critical, particularly if employees work remotely or work in different states.
Is It Enforceable?
Employment laws vary from state to state. Certain provisions in your employment agreement may impact the enforceability of the contract. For example, restrictive covenants are provisions that restrict or prohibit former employees from activities like competing against the business or soliciting clients or employees from the company. In states like California, employment agreements that attempt to prohibit competition are considered against public policy and are void and unenforceable. If you include restrictive covenants in your employment agreement and you live in a state like California, your agreement may expose you to more problems than it prevents.
How We Can Help
Our legal team understands the complexities of hiring new employees. We can help you review your employment contracts under applicable state law and ensure that they are enforceable. Call our office to schedule a meeting with one of our experienced attorneys today.