Employment Agreement Help Guide

A well-drafted employment agreement should protect the interests of both the employer and employee and be flexible enough to handle a variety of common potential disputes that may develop in the future. This help guide will detail information about important terms and considerations for this agreement.


Party Information

When identifying the parties, be sure to use the full legal names of the employee and employer. Note that the employer can be either an individual or business entity. If the employer is a business, be sure to include the type of business entity in the name of the employer; for instance "eDemand, LLC."

Employment Term

Choosing whether you want the agreement to continue indefinitely or for a fixed term will determine the type of employment involved. For instance, choosing an indefinite term will create an at-will employment contract. This allows either party to terminate the employment relationship at any time, with or without cause. At-will employment is the most common type of employment throughout the United States.

However, if the parties desire a more definite employment time frame, you can explain that the employment is for a fixed term. This means that the employment can only be terminated while the agreement is in effect for just cause, such as violating a term of the agreement.

Job Description

Add the job description by detailing the relevant services that the employee will perform. There is no need to include every individual service the employee will be responsible for because the agreement allows the employer to assign new duties that are reasonable within the scope of the agreement. Simply including the general job duties will suffice.

You will also be able to decide whether or not the employee is allowed to engage in outside employment for other businesses while performing the services under this agreement. This term is usually negotiated upfront with the employee to ensure all parties are on the same page.

Compensation and Benefits

You have complete flexibility in tailoring how the employee is paid, including by hourly wage, salary, salary plus commission, solely on commission, or your own custom pay structure.

You also have the option to list any benefits the employee will receive. This part is optional since you can always agree on benefits at a later time with the employee or in a different agreement.

It is not necessary to include all the employer's rules and information regarding each benefit you include. Instead, you may simply name the benefit and briefly describe any major characteristics associated. Further details of each benefit are normally elaborated in the employer's official policy documentation and may be subject to change.

Ownership of Intellectual Property

Under the terms of the agreement, the employer will retain all work produced under the agreement. This is legally known as "works made for hire."

However, if the works or services provided are generic in nature, you may want to reword this provision so that the employee will retain ownership and the employer will only be granted a non-exclusive limited right to use any intellectual property produced by the employee.

Dispute Resolution

It is usually recommended that you include an arbitration provision. This requires disputes to be settled through binding arbitration and avoids the time and expense of going through the formal court system.

Next, indicate which state's laws will govern the agreement. Usually, the employer lists its principal place of business as the governing state. Other options include using the employer's state of incorporation or the state where the two parties are conducting any business together.

Non-Compete

Choosing to include a non-compete clause will prohibit the employee from engaging in similar work as he or she performed for the employer. If the employee works in an occupation that has many clients at once (e.g. financial advisers or attorneys), or holds a relatively narrow expertise, courts may not enforce such a provision if it is seen as an overly burdensome restriction on the employee's ability to find work.

No matter what the employee's occupation is, however, it is important that the non-compete clause is tailored to be as narrowly restrictive as possible. If the employer operates in a rapidly changing industry, such as in the IT industry, then it will be hard to justify a non-compete term lasting longer than six months or a year. In most cases, if you insert a non-compete term longer than two years, then you will be running a higher risk of a court someday shortening it down or invalidating it altogether.

Confidentiality and Non-Solicitation

Confidentiality provisions will prevent unwanted disclosure of the employer's confidential information and trade secrets by the employee. You can choose to limit the non-disclosure requirement to a fixed period of time after the parties' relationship ends or only while the agreement is in effect. If these options will serve to protect the employer's interests, then it may be a good idea to limit the term. However, if the employee will be learning confidential information and trade secrets that will hurt the employer's business if exposed, then it is likely a good idea to prohibit their disclosure indefinitely.

A non-solicitation provision prevents the employee from adversely interfering with any of the employer's business relationships; for instance, by trying to lure away the employer's own employees or business contacts. The term of the non-solicitation should be limited as much as possible to not be overly burdensome on the employee while still protecting the employer's interests. Courts generally accept anything between one month and two years depending upon what is reasonable under the circumstances.

It is usually a good idea to include these provisions unless you want to outline them in a separate confidentiality agreement. However, these provisions will likely need to be negotiated between the parties upfront.

Termination

Next, specify how much advance notice is required when a party decides to end the contract. In many industries it is customary to require at least two weeks' notice of termination. However, it is completely acceptable to not require any notice.

Note that if a party is terminating the agreement due to a violation of the agreement by the other party, then the agreement states that no notice will be required to terminate it.

Additional Terms

You can add additional terms and conditions as desired. You have complete flexibility to tailor the document to reflect the specific situation and true intent of the parties, but be sure to preview the agreement first so that you know what has already been included for you.

As an example, you might require the employer to pay a cancellation fee (or "kill" fee) to the employee if the employer decides to end the contract early. However, if the term length is indefinite, then you will not be able to require a cancellation fee. Instead, consider requiring severance pay.

How to Execute Your Agreement

  • Have each party to the agreement sign and date the signature lines where indicated. Electronic signatures are allowed by the terms of the agreement. The parties can also sign copies sent to each other by email, fax, or other electronic means. If you include an arbitration provision, make sure that each party signs the arbitration exhibit.
  • Make sure that all parties receive a copy of the agreement after it is executed.

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