Employment contracts are necessary to protect you and your business.
Employees can be both one of your biggest assets and one of your biggest liabilities. Your business is reputation is directly tied to the people you hire. So having that negotiation upfront and getting it in writing is absolutely necessary.
Hiring employees for your business is a fun and exciting time in your business. It’s a sign of growth. It’s a sign of moving upward. So for a business owner, it’s really important that you take the time to go through the process of determining who you’re going to hire, how you’re going to hire them and how you’re going to onboard them.
Drafting and Sending an Employment Contract
That process absolutely needs to include drafting and sending an employment contract to your employee before their first day of work. Why? Because you have to have employment contracts in writing with employees comes a greater degree of responsibility and liability, not just compensation, but workers compensation and insurance. Talking about termination terms, codes of conduct, not to mention what if you have an employee who leaves with your intellectual property or your proprietary information?
How are you going to protect that information? How are you going to protect your business if in the occasion the relationship doesn’t work out, an employment contract serves as a legally binding agreement between you, the employer and the potential employee, it comes with all sorts of terms that you can decide are necessary for your business. Some standard things that are included are one the duties of the employee.
These should be specifically outlined to what their job will be to compensation.
What are you going to pay them? Not just in terms of their hourly or salary rate, but also what, if any, benefits are you offering as a company? Their terms and termination. Like, when can you fire them? Under what circumstances, and for what reasons? How long is the relationship going to last if it’s not indefinite and if it’s got a term on it, say, a year or more, when does that need to be reinstated?
Finally, any special clauses such as confidences, quality, non solicitation and non-competition? These clauses have to be done at the outset of the relationship by law and they have to come generally with some sort of “consideration.” Oftentimes that’s compensation, bonuses, any number of things. Additional clauses such as confidentiality, non solicitation and non-competition should be done at the outset in writing and tied to the consideration that already exists in the employment contract, i.e. their compensation or bonuses by law.
If these things are required to come with what we call consideration, or if you don’t do it at the outset and you try and bring in those terms later, they may not be binding and you may not be able to protect your business, your intellectual property, or your proprietary information from that employee, leaving it and selling it to your competitor.
Let me give you two examples of where a contract can help you.
Number one, you bring on a new member of your sales team. You decide not to offer them an employment contract onboard them. You get them started. You’re excited to have them hit the ground running. You’ve had some conversations about what their sales goals are in team meetings and over email, but it’s never been formalized.
Six months in, they’re not hitting their numbers, they’re not performing how you’d like them to, and you decide to let them go. After they’ve been terminated, they come back to you and they claim that instead of you firing them for nonperformance, you’ve fired them for unjust causes. Fill in the blank with any number of reasons. An employment contract with their terms of performance would help you justify your choice to terminate them. Without an employment contract, you’re left at the mercy of a court and common law and their story versus yours.
A second example would be you’ve had an employee for years and you trust them like you would your family. You as a company make a shift and you create a new proprietary tech product. This employee has been part of that project the entire time.
You have no indication that there’s any reason you can’t trust this person. And then one day they give you their two weeks notice, and then a month later you find out that they went and got hired by your direct competitor. And they’re taking with them not only their years of knowledge about how your business operates, but the in’s and out’s of this new proprietary tech product that your company is about to launch. An employment contract that had a non-compete agreement and it would potentially prevent that person from having gone and worked for your direct competitor. And if it had a confidentiality clause in, it would prevent them from taking that proprietary information to your direct competitor.
Without those things, your information is gone and now your competitor has all of your new product prior to launch, which is a loss you can’t afford. According to the 2021 Bureau of Labor Statistics report, a third of all employees quit after six months.
Employees between the age of 24 and 35 only stay at a company an average of 2.8 years.
As transient as our workforce is becoming, it’s incredibly important that a business protects both itself and its employees by having an employment contract at the outset that establishes the expectations for both the employer and the employee saves you the headaches that happen when people are terminated and saves you some very costly litigation in the end.
So if you’re a business who has employees or you’re thinking about hiring employees and you don’t have an employment contract drafted, give me a call today. Let’s talk about how to protect your business.