Establishing the talent to manage the steady increase of clients and employee turnover
from COVID-related changes has created a trending issue for any industry. But the
demand of the job market often underscores the value of a comprehensive employee
contract and how it is leverage in mitigating your firm’s risk.
The most effective employee contracts are those that address specific areas consistent
with federal, state, and local laws. Having outside counsel draft specialized language for
employee contracts helps firms avoid problems that may impact client service.
The purpose of an employee contract, also known as an employment agreement, is to
cite and define the obligations and responsibilities of both the employer and employee.
Employee contracts can cover W-2 and 1099 contract employees. They’re commonly
used when hiring executives, senior-level managers, freelancers, and short-term,
temporary, or part-time employees.
Information To Include
Much of the necessary language for employee contracts can be included in a firm’s new
employee handbook. Exceptions are employee responsibilities, reporting structure, and
length of employment, which should be tailored to each individual.
Corporate counsel can draft a standard employee contract to cover the scope of
employment and restrictive covenants such as non-compete and non-disclosure
Firms often fail to include language for assignment clauses that can stipulate any patents
developed and claimed by an employee during their tenure belong to the company. Thorny
issues such as grounds for termination and methods of dispute resolution should be written
or reviewed by specialists in employment law.
Term and Termination of Agreement. Whether a contract or full-time position,
the firms should always establish the timeframe of employment. While this
generally refers to the length of employment, with most positions the term is
indefinite, as all employees in the state of California (and most states in the
country) are at-will employees, meaning the employee or the employer can
terminate employment at any time with or without cause. On occasion
employment may be for a limited time frame, like a contract position, those
details should be included within the terms of the agreement.
Benefits. Are health or life insurance benefits included? What’s the dollar
amount of commissions and bonuses, how are they calculated, and when are
they payable? Is there a 401(k) plan? Profit sharing? Stock options? The benefits
a company provides are essential to clearly define in today’s competitive job
market. The possibility of working from home is more important to some people
than sick leave or vacation time.
Compensation. This is the part of an employee contract that understandably
garners the most interest from new hires. What is the employee’s base pay? Will
the employee be paid weekly, biweekly, or monthly? Experts in labor law can
help your firm benefit from the advantages and avoid the common disadvantages
to employee contracts.
A contract can give your company more control when it comes to reprimanding or
terminating a clearly substandard employee. But a contract binds the employer to the
covenant of acting in good faith and fair dealing. Violating this covenant can lead to
serious legal challenges.
Offer Letters v. Employee Contracts and Agreements
It’s important to note the legal differences between an offer letter and an employee
contract. Offer letters are only presented to prospective employees and are not legally
binding. They tend to cover only such areas as benefits, compensation, and title, but
can be written to include non-disclosure and non-compete agreements.
Once a prospective employee accepts the provisions in an offer letter, an employee
contract becomes critical because it is a legally binding document between the firm and
the individual. For more information or assistance with drafting your firm’s employee
contract, contact us at (619) 298-2880 to schedule a consultation.