Employment Contracts: Why They Are Important and How You Can Use Them to Protect Your Business.

In Break-ups & Partnership Disputes, Business Tips, Business Transactions, Contract Disputes, Contracts, Dispute Resolution, Employment Contract, Employment Law, Non-Compete Agreements, Non-Disclosure (NDA) & Confidentiality Agreements, Partnerships by Joseph TurnerLeave a Comment

Hiring new employees is a difficult process. You have to be sure they are properly suited for their position and have a personality and temperament which will suit the work environment you have spent time and effort putting together. This coupled with negotiating benefits, salary, and slotting in time for training in an already busy schedule can seem overwhelming and may tempt you to put off or avoid altogether creating a written agreement regarding the terms of that employment.

However, in many ways, an employment contract can be not only integral to establishing a healthy relationship with a new employee but can also relieve a great deal of the guesswork and frustration that accompanies hiring a new worker. This can allow you to focus on the more important goals of ensuring he or she is delivering the type and quality of work you expect and maintaining consistent workflow for your business.

Below are a few benefits that an employment contract can bring to you and your business.

  • Setting clear expectations for your employee.

Nothing is more frustrating than discovering that an employee has completely foregone one of their work expectations and having to essentially start from scratch or even re-train that employee on each of his or her job duties. Equally exasperating is having to endlessly repeat your general expectations for taking time off, or who an employee should be reporting to for different issues. It is a waste of time for you and your employee and can be easily avoided by setting forth clear policies in an employment contract.

Additionally, there are many areas where you can set up the atmosphere of your unique workplace and can draw a clear line in the sand for activities that are absolutely unacceptable in your business environment.

These provisions can clearly state how an employee is evaluated and compensated, and can set out policies for taking paid time off, sick leave, and, if necessary, how an employee can make up lost time. Clear and concise ground rules will alleviate misunderstandings and disagreements down the road – keeping you and your employee happy and head-ache free.

  • Creating delineation between types of employees.

It is very important that a new hire understands his or her employment classification. Depending on his or her role or position, he or she will be working for salary or commission and will be exempt or non-exempt (which will determine if he or she will receive overtime pay under FLSA[1]). This status will also indicate if a new hire is actually an independent contractor rather than an employee for your business. Each of these classifications will determine what (if any) benefits a new hire will receive, whether he or she will receive unemployment if the position is cut, and will determine what degree of control or oversight you will have over that person in the future.

All too often, the root of employment legal disputes stem from a lack of clarity over an employee’s classification. Setting this in stone at the outset will not only avoid this confusion but will potentially protect you in legal proceedings should the worst come to pass.

  • Protecting your business in cases of separation.

No one likes to think about the worst case scenario when taking on a new employee. Unfortunately, some amount of turnover is to be expected, and you will likely find yourself in the position of having an employee quit or needing to let that person go for one reason or another.

This is where an employment contract can offer you and your business some of the most value. If you discover that the employment relationship is ending, there are numerous dangers that can arise. For example, there is always a risk that an employee will take the tools, skills, and information you have spent years putting together and disclose those things to a competitor, or even use them to start their own business with minimal cost and effort.  Depending on your industry, it can be absolutely critical to have strong provisions regarding non-compete agreements, confidentiality, and your business’ ownership over intellectual property.[2] 

If a legal dispute does arise, one of the most critical tools you and your lawyer will have in your arsenal will be the terms of your employment contract. This can be used both defensively (where the employee alleges wrongful termination) or offensively (as in a case of breached confidentiality or theft).

Ultimately, what you decide to put into your employment contract will come down to your personal preference and the unique needs of your business. In any case, it is always a good idea to have an employment contract in place as it can help prolong a strong relationship with your employees and protect your business in case that relationship breaks down.

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