Have you ever wondered if your company should use employment contracts with some or even all of your employees? It all depends on the type of contract and the type of employment relationship you wish to create.

Typically, employers prefer to maintain their right to dismiss employees at will, and employment contracts can take away that right.

What Does an Employee Contract Consist Of?

Besides clearly laying out what an employee is doing for you, and you’re doing for them in terms of salary and any applicable benefits, the employee contract can address several other aspects of the employment relationship, including:

  • Information about the worker’s responsibilities
  • Duration of the job – one or more years
  • The ground for termination
  • Perks of the job, including vacation leave, health insurance, disability leave, and worker’s compensation
  • Protection of client lists and trade secrets
  • Limitations on an employee’s ability to work in competition the company once they leave
  • A way to resolve disputes that may arise about the contract
  • Ownership of an employee’s work product, for example, if they invent something or write a book or industry-related materials

Let’s look at the benefits of an employee contract.

1.    Hiring Key Staff Members

All employers should give serious thought to an employee contract when hiring key employees and executives. Such people may have special or unique skills that the employer would be hard-pressed to replace, should the person suddenly leave. As a result, an employer can layout any conditions and offer incentives not possible without a written contract.

2.    Detailing Benefits and Incentives

An employee might want a contract that clearly lays out compensation and benefits. A contract can detail an expected salary, benefits and incentives or bonuses. These kinds of compensation details might not be possible without a contract in place.

3.    Agreement Not to Compete

Employers may want to have in place a covenant not to compete clause. This clause is designed to limit competition from the employee, should they leave the business. There may be employees that learn the business inside out, in such a way that they’re equipped to set up a competing company. Employers may want to limit or control such competition.

4.    Copyrighted Company Materials

Employers may want to consider a contract that makes sure that any document or work created by the employee when they are employed at the company remains the company’s property. Such a clause that all work created for the business, using the company’s resources remains the property of the company is defined by the United States Copyright Act. This type of clause could save a company litigation cost, should a dispute arise in the future.

5.    Protecting Proprietary Information and Trade Secrets

Employers sometimes want to protect trade secrets and proprietary information. The best way to do this is with a written and formal employee contract. The contract can carefully dictate that certain material may not be disclosed or used outside of the company. What’s more, the contract can state how information is used by and within the company.

More importantly, employee contracts may specify what information, if any, an employee is permitted to take with them when they leave the company.

6.    Invention Assignment

If an employee is likely to develop a patent or invention using a business’s resources, employers may want to include an invention assignment clause in the employee contract. This type of clause specifies that the company owns any inventions an employee works on or develops that use the company’s trade secrets, supplies, and equipment.

When to Contact a Lawyer for Employment Contract Issues

Employee contracts are binding, and they offer both benefits and drawbacks. Deciding whether or not to enter into a contract should never be taken lightly. If you need advice on drawing up an employee contract, or whether or not one is necessary, you should contact an experienced attorney who can provide advice on whether an employee or employer needs a contract and whether or not a contract benefits both parties.

Book a consultation at Principal Law Firm to discuss your employee contract today.

 

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