Human Resources Articles
The Secrets of Employment Contracts
Attracting and retaining top-talent is critical to the life or death of a company. Hiring and--perhaps even more importantly, retaining--valued human capital is the essence of any company's success. Achieving this goal involves many steps, and one area to consider is a carefully thought-out employment contract for new hires.
This type of contract's primary purpose is to protect your company. But it has other uses as well. A carefully structured and worded contract provides an opportunity to reiterate that your company is a great place to work, and that your new employee will feel valued as part of the team.
Covering the Bases
Because the contract's purpose is to establish the employment relationship, it should clearly articulate the terms and conditions of service. The most common portions of a written employment agreement include:
- a term of employment
- duties and expectations
- a provision for protecting the company's trade secrets and confidential information
- a way to limit competition during and after the agreement
It's equally important to establish the employee's compensation and benefits, and to spell them out rather than lumping everything into one annual salary. Let your employee see all the value he or she will get as part of your team. In particular, incentive programs should be outlined in detail or reference should be made to a separate written agreement.
Get Down and Dirty
Job expectations should be well defined, so an employee will be encouraged to act with the company's best interests in mind. Some contracts may go as far as listing a brief job description and specific duties. It is also typical to refer to additional duties “as assigned” so employees are not limited in responsibility.
A confidentiality clause should indicate that the employee holds all proprietary data and trade secrets in confidence during employment, and for a specified time afterward. For R&D employees, their rights should be made clear concerning patents, copyrights, and/or inventions as part of the contract or in separate agreements.
Termination specifics are equally important. According to Louis Obyke's Written Employment Contracts, published by the Society of Human Resource Management (SHRM), a contract may include automatic termination on a specific date, renewal provisions and termination requirements. Typical reasons for termination include death, disability or sale of the company by the employer.
In states where "at will" employment is the law-such as California, where employment can be terminated at a moment's notice-some protection against impulsive termination can be useful. Here the contract would simply stipulate some standard requirements for termination by either the company or the employee. This critical part of the contract helps retain key personnel and reduces turnover. For their part, employees may appreciate the extra care taken by the company to ensure a stable work environment.
Lastly, the contract should provide a non-compete agreement to discourage employees from competing with the company during employment and after termination. However, such agreements are not valid in all states. Your legal counsel should carefully review this and all portions of the contract to ensure correct language, as well as compliance with state and federal laws.
A Slip of the Lip...
One area of caution pertains to an implied contract resulting from the employer's actions. For instance, if a manager promises an employee "a job for life," or if an offer letter makes promises that can constitute an implied employment contract, then a contract may indeed exist.
To ensure that the worst doesn't happen, it's necessary to be careful when discussing the dimensions of the job with a prospective employee. The actual employment contract is a legally binding agreement between both parties, and should always be extended as a "written offer" from the employer and returned with an "acceptance" from the employee.
Working Smart
When done correctly and carefully, employment contracts are a legitimate method for protecting both the company and its workforce. They provide structure and security to both parties. Seek to work with a vendor that can help provide you with specific language for inclusion in contracts, offer letters, templates, and access to legal guidance.