May 5, 2016
Well-written employment agreements, which can include non-compete and non-solicitation agreements, can help companies and employees alike by clarifying expectations and decreasing the chances of disputes. They can also help companies remain competitive in an increasingly challenging marketplace. However, if employers are not careful with their employment agreements, they can end up in trouble with regulators or dragged into court by employees. In order to avoid problems, companies need to follow a few best practices to execute agreements that will help both employers and employees achieve their goals.
Elements of Agreements
Companies can choose to customize employee agreements in a number of different ways. They can have contracts for all employees at a certain job level, or they may only require contracts for employees with particular job duties. There are a number of common provisions in employment agreements.
The scope of employment lays out the responsibilities, expectations, job location and hours.
Depending on a company’s industry, invention assignments may make sense. With an invention assignment agreement, companies own any inventions or business ideas that employees come up with that relate to the company’s business.
Through non-disclosure agreements (“NDAs”), employees agree not to disclose any confidential information they learn while working for the company. This allows employees to acquire the information they need to do their jobs, while protecting the company’s intellectual property and other key information.
By signing a non-compete agreement, or a covenant not to compete, an employee agrees not to work for a direct competitor for a specific period of time after leaving the company.
Non-solicitation agreements prevent a former employee from soliciting a company’s clients, customers, or co-workers after the employee leaves the company.
Employment agreements can also lay out grounds for termination and what qualifies as being fired for cause, such as conviction of a felony, committing theft or fraud or breaching the employment agreement.
There are several things employers should consider when creating employment agreements.
- Talk to the experts – If employers are considering using employment agreements for the first time or have not reviewed their employment agreements in awhile, it’s a good idea to consult with HR professionals and in-house and outside counsel.
- Think about incentives – Agreements should not be one sided and only benefit employers. There needs to be something in it for employees, too. In a 2014 case, an Illinois state appeals court ruled that employees needed to work for a company for at least two years in order to have an enforceable non-compete agreement, if there wasn’t some other benefit like a bonus.
- Make arbitration agreements fair – Employment agreements can include an arbitration clause, requiring employees to use alternate dispute resolution approaches in lieu of litigation. However, arbitration agreements that favor employers against employees can be thrown out of court or get employers in trouble with regulators.
- Consider all state and local laws – Employers need to keep state laws in mind. Some states, such as California, have specific legislation governing employment agreements around trade secrets and non-compete agreements.
- Be specific – The more specific language and less “legalese” an employment agreement contains, the less likely employees will be able to say they were confused by its terms. They also will be more likely to stand up to legal challenges.
A solid employment agreement should protect the employer’s interests, while also being fair to employees. If employers decide that employees need an employment agreement, it should be drafted with the help of experienced employment counsel, in order to help ensure the company avoids litigation and does not end up in court or become the victim of bad publicity.