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.
When hiring a new employee, it is vital to ensure that your agreement accurately captures both parties’ expectations. 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 employee’s tasks?
- What types of tasks will your new employee need to perform and how often?
Misunderstandings at this level can create frustration on the part of the employer and employee. Clear language explaining the employee’s job parameters is crucial to a good employer/ employee relationship.
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 to classify employees correctly. Communicate this classification and its implications to your new hire to avoid any potential misunderstandings.
Compensation
Compensation 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. Ask yourself these questions:
- Will the employee receive payments bi-monthly or weekly?
- Is there a predetermined structure for raises and incentive bonuses?
- Will the employee receive pay for extra hours or for any time missed above the allotted sick and vacation days?
Ensure that you discuss these details, are in agreement with each other, and have documented them 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 concerning those benefits. For example, if you start an incentive program for putting in extra hours, consider including how the program works in the employment contract.
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 contract. 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 to resolve potential disputes to save significant time and money in the future if a problem arises with your employee. Determine the extent to which you would like to use alternative dispute resolution options like arbitration and mediation and include them in your agreement.
Working this out beforehand gives the employee an idea of how to handle any issues they might have and an understanding that you are willing to work out disputes outside of a courtroom.
Confidentiality and Intellectual Property Matters
Employees have unique access to the trade secrets of their employers. Likewise, an employee may create additional forms of intellectual property throughout their employment. Use this portion of your employment agreement to legally require your employees to maintain confidentiality concerning 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 contract. Knowing the governing body is critical, particularly if employees work remotely or work in different states.
Is It Enforceable?
Employment laws vary from state to state. Specific provisions in your employment agreement may impact the enforceability of the contract. For example, restrictive covenants prohibit former employees from competing against the business or soliciting clients or employees from the company.
In states like California, employment agreements that attempt to restrict competition are considered against public policy and are void and unenforceable. If you include restrictive covenants in your employment agreement and live in a state like California, your contract may expose you to more problems than it prevents.
How We Can Help
Our legal team at Hopler, Wilms, and Hanna 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 or contact us online to schedule a meeting with one of our experienced attorneys today.