When you’re running a small business, every penny counts. That’s why protecting your company with well-drafted contracts is so important. Contracts form the basis of binding agreements between your business and its employees, customers, and vendors. Without them, misunderstandings can quickly turn into expensive legal battles. Learn about 7 types of employment contracts for small businesses and how to ensure they are enforceable under North Carolina law.
Small Business Owners and the Employment Relationship
Many businesses approach employee contracts half-heartedly, finding cheap legal services with free contract templates online. The problem with these contracts are numerous but include the following:
- Written for states other than North Carolina
- Designed using old or outdated laws
- Use contradicting terms that invite future lawsuits
An employment law attorney understands the interpretation of a contract in a court of law can make or break a business’s future!
Essential Employment Contract Types
As a small business, you likely have many legal processes to worry about. One of the most important is putting contracts in place that will protect your company if something goes wrong.
Employee contracts are a type of business deal that prevents legal liability from falling on a small business owner. You’ll want to ensure that both you and the employee sign any legally required contracts to prevent undue liability.
Many small business owners use the professional services of a law firm to craft most agreements. Because North Carolina law has highly intricate contract statutes, you need to avoid legal action by using the essential terms to keep your contracts airtight.
There are four main types of contracts you should have in place when it comes to working with employees:
1- Employment Job Offer Letter
Hiring employees can be a tricky process where. You want to be careful how you start out with a new employee relationship!
An employment offer letter is a business contract employment agreement between you and the employee. As an initial employment contract, it does not include the entire agreement the actual employment contract will include later. Instead, it’s an implied employment contract.
Employment offer letters typically include the salary, job title, job description, start date, hours of work, benefits information, at-will employment status (if applicable), confidentiality agreement, and other important terms of employment.
You’ll have the potential employee sign if they agree to the terms of the possible new employee agreement you have discussed.
2- Employment Agreement Contracts for Employees of the Company
The employment contract is the agreement between you and your employee that outlines their job responsibilities, salary, benefits, and other employment-related matters. Ensuring this contract details expectations clearly and meets all employment law requirements in North Carolina is essential.
An employment agreement may include a more detailed list of expectations for both the employer and employee, such as provisions related to intellectual property ownership/protection; termination clauses; non-competition clauses; compensation provisions; performance reviews or bonuses; dispute resolution procedures; and tax obligations.
In addition, creating an employee handbook can help keep the employment relationship on the same page. New employees may not read their contracts closely, but an employee handbook can remind and help a new employee see some of what their employment contract requires.
3- Independent or Freelancer Contracts
Independent contractor agreements are for individuals who work for your business on a contract or freelance basis. This agreement should outline the services they will provide, payment terms, the personal equipment they will use, and any other relevant provisions.
One applicable provision involves service contracts with dangerous positions. “A release of liability is used by operators of businesses when the company needs to release themselves from liability; when damages or injuries are a possibility from an activity the business sponsors or owns.” (1)
4- Non-Disclosure Agreement (NDA) & Confidentiality and Invention Assignment Agreements
A confidential or proprietary information agreement sets limitations about which sensitive information may not be shared. This information may include customer data, intellectual property, or trade secrets from being disclosed. A confidentiality agreement should be in writing and signed by both parties.
A proprietary items contract may be your best business strategy. However, if you don’t make this contract legally enforceable, your confidential information can leak, bringing a significant revenue loss!
It’s essential to have this employee contract signed before any discussions that include confidential information. Companies rely on the private information of their business staying confidential!
Employees develop innovative products, ideas, inventions, and business strategies. Protecting this sensitive data from being shared outside the company walls is crucial. So, the invention assignment agreements that employees sign help ensure that what is created within company walls stays there!
A confidentiality clause contract ensures employees keep company business within the company. If you, as an employer, have proprietary information, you need legal protection from informational leaks.
“With a provisional patent application, the invention or product will be protected before the full patent filing happens. This allows the company to use a pending patent notice and set an official date to file the patent.” (2)
This agreement should also be in writing and signed by both parties to ensure its enforceability under North Carolina law.
5- Non-Compete Agreements
Noncompete agreements limit an employee’s ability to work for a competitor after leaving employment with your business. They may also prevent employees from going into business for themselves using information they learned at your company.
6- Changes or Reductions in Wages
While this is not strictly a contract, it is a change you, as an employer, must handle correctly to avoid legal issues. The law changed in 2021 in NC regarding how to handle changes or reductions in wages.
You can, by law, change your wage agreement with an employee at any time, regardless of the original wage agreement and without the employee’s permission. However, you must meet the NC Wage and Hour Act requirements, which require that you:
- Notify your employees in writing at least one pay period prior to any changes in wage agreements that result in the reduction in pay or wage benefits (N.C.G.S. §95-25.13(3)
7- Severance Agreement
A severance agreement is an employment contract that outlines expectations when employment is terminated. It should include details about the severance package, including salary, benefits, and other compensation, such as stock options or bonuses.
Crucial Legal Language for Contracts in North Carolina
Whether you’re talking about full-time employees or part-time employees, many contracts should include a confidential binding arbitration clause. This clause protects both the employee and employer from small business legal disputes.
Protect Your Business with Legal Documents
When drafting employment contracts, it’s important to ensure they meet all North Carolina employment laws and regulations to ensure their enforceability in court.
Consider consulting with an employment law attorney who can help you create airtight legal documents tailored to your business’s needs. Doing so can save you time and money in the long run.
By properly creating employment contracts for your small business, you can protect your company’s assets and ensure a successful future. With well-drafted employment agreements that meet North Carolina laws, you can confidently move forward knowing your business is legally protected.
So whether you’re hiring your first employee or negotiating a deal with a new vendor, ensure you have the right contracts in place to protect your business!
Our Experienced Employment Attorneys Can Help
At Hopler, Wilms, and Hanna, our contract and employment law attorneys have extensive experience representing small businesses in North Carolina. We’re committed to providing the highest-quality legal representation and helping you protect your business through contracts tailored to your unique needs and goals.
Reach out today to schedule a consultation with one of our experienced employment lawyers! We look forward to serving you!