Most states assume an “at will” employer/employee relationship which means employers can terminate an employee at any time and for any reason; an employee can quit for any reason; and “cause” or motive for ending the employer/employee relationship is generally irrelevant. There are, however, circumstances under which entering into an employment contract makes sense.
A good employment contract will make it very clear exactly what the parameters of the job are and what an employee’s expectations are. With this in mind, there are certain clauses every employment contract should include.
First, for the employment contract to be enforceable, it must contain the basic elements of a contract for services. This means that there must be some identification of the employee’s place of employment; a specific time period or fixed term for the period of employment; a description of the services the employee is to provide; and the amount of compensation the employee is to receive.
Most employment contracts have these common elements such as the employee’s start date and salary. Below are other provisions that often appear in employment contracts. Your attorney can advise you on the advantages and disadvantages of incorporating various provisions and suggest other ones to include.
- Description of Duties: A clear description of the employee’s duties, which should include the employee’s position title; essential job functions or duties of the position; and any limits on authority. This description should include the place or location where the duties will be performed and duration of employment.
- Compensation: An employment contract should set forth clearly the terms of the employee’s compensation. This means everything from method of payment (salaried, hourly, commission), when they will be paid (weekly, bimonthly) to the expected hours of work per week, to whether overtime must be approved prior to its accrual. Beyond the position’s salary, state the company’s position when it comes to raises and bonuses. For example, is there are standard protocol for raises? Include how you handle expense accounts as well.
- Confidentiality: An employment contract can help protect the intellectual property of a company. Under this provision, an employee promises never to share any information about the details of how the employer’s business is conducted, including trade secrets, plans, formulas, and machinery used.
- Benefits and sick days: The employment contract should also address any benefits to be provided to the new employee or for which the employee may be eligible during the term of employment. Include any health, dental, vision or other insurances your company offers. State any percentages of benefit premiums the employee will have to pay. Also be sure to cover policies on holidays, sick days, vacations, stock options, any profit sharing your company offers, and retirement plans for employees.
- Termination: A standard part of any employment contract is the termination clause. Explain what actions will not be tolerated from the employee and what would result in immediate termination. You should also specify that the employer has the right to terminate the contract if the employee violates the contract in any way, or becomes permanently disabled (from ill health, physical or mental disability) such that the employee can no longer do the job. Also point out any notice requirements.
- Non-compete/Non-Solicitation: Some companies choose to include non-compete clauses in their employment contracts. This means that if your employee moves on with his or her career, he or she won’t be allowed to work at a company that is one of your direct competitors. Because it’s anticompetitive to prohibit people from earning a livelihood in their field, a non-compete agreement is disfavored in California. For instance, in California at least you may not prevent a former employee from working for a competing business even close to yours and even for a limited period of time. However, you can prohibit an employee from taking your property and trade secrets such as customer lists, contact information, proprietary information and formulas, and price lists to set up a competing business. You can also prohibit an employee who leaves to compete against you from soliciting other employees away from you.
- Arbitration: An employment contract should include provision that describes a method for resolving any disputes that arise about the agreement. With an arbitration clause, the parties agree at the onset of the relationship that if they ever have a dispute about any aspect of the employment relationship, they will submit the dispute to arbitration rather than take it to court.
- Best efforts: A best efforts provision states that the employee promises to work to his or her best ability and to be loyal to his or her employer. Often it’s just assumed that the employee will work hard for the employer, but some employers choose to add this provision to their employment contracts.
To schedule your consultation with Mike McColloch, please contact him at (760) 632-1100 or through his online contact form.