Not all employers choose to enter into employment agreements with their employees. However, there can be certain benefits of entering into such agreements. Agreements can provide clarity by setting out the terms of employment and the mutual obligations between the employee and the employer. They can also provide protection for your business after an employee leaves employment.
While we always recommend that you have your attorney help you draft an employment contract, here are ten items that you will want to consider as you contemplate what to include in any employment agreement:
- The Parties’ Names: Make sure you identify the name of the employee and the employing entity. This can be particularly important for multi-entity companies with different subsidiaries and divisions.
- Effective Date: Explain when the agreement takes effect – whether it’s by the employee’s signature or by a certain date. If the effective date of the agreement is a date in the future, you should understand that any obligations that employee assumes under the agreement (such as a non-competition or non-solicitation restriction) will not take effect until that date.
- Term of the Agreement: Identify how long the agreement will run. This could be for an indefinite term, a definite term, or a definite term with automatic extensions. Most employment agreements run for the duration of the employee’s employment.
- Position and Duties: Provide the employee with their title or position, expected hours of work, and lay out what duties they are expected to perform. Include a catch-all that states that they may also be expected to perform additional duties assigned by their supervisor or manager.
- Compensation and Benefits: Outline the employee’s compensation, including frequency of wage payment. In addition, provide a brief explanation of what benefits they’ll be eligible for based on their position.
- Termination of Employment: State whether the employee’s employment is at-will, or whether termination can occur for cause. If the employee can only be terminated for cause, be sure to clearly define cause and provide any applicable exceptions.
- Severance Pay: State whether the employee is eligible to receive severance pay when the employment relationship ends and under what circumstances. Agreements that provide severance pay typically do not require payment if the employee is terminated for cause and define cause clearly. Be sure that any severance payment is conditioned upon the employee signing a release of all claims against your business in a form that is acceptable to you.
- Restrictive Covenants: Depending on the employee’s position, you may require the employee to enter into a non-compete and/or non-solicitation agreement. These must be reasonable as to duration and geographic scope, and limited to what is necessary to protect the employer’s legitimate business interest. If you are providing severance pay, make sure to condition severance pay on the employee complying with any restrictive covenants.
- Amendment Language: Clearly state that the agreement or terms and conditions of employment can only be altered in writing and must be signed by both the employer and employee.
- Signature Line: Always ensure that the employee signs the agreement and maintain a copy of the document with all required signatures.
While every employment agreement will contain unique terms and conditions depending on your business, make sure that at a minimum, the above terms are addressed. If you notice that your standard employment agreement lacks any of the above terms, we recommend contacting your attorney to discuss.
Contact the author Barbara Moore.