5 Key Elements Every Employment Agreement Should Have

Employment agreements are not necessarily rare, but they are not particularly common, either. Employment agreements are usually entered into between an employer and executives, physicians, scientists, engineers, and other highly skilled employees.  Where there is an employment agreement in place, there are certain elements that should be included to protect both the employer and the employee. Here are five of those elements.

Scope of Employment

Put simply, this explains what the job will entail. It may layout the employee’s job title, responsibilities, duties, and location of employment. If the employer and employee have negotiated particular elements of the scope of employment, they will be memorialized here. This can include stipulations such as:

• The employee can work from home for a certain number of hours or days per week,
• The employer cannot move the employee to a different office in another state without sufficient notice or the employee’s consent,
• Goals to be reached on a particular schedule,
• And more.

Term and Termination

Usually, employment agreements will remain in place for as long as the employee remains employed and will only terminate upon some violation of the agreement by either the employee or the employer. In certain situations, however, the employment contract may have a set term of employment. For example, special contractors who are brought in for a specific purpose may have a specified time in which they are employed.

The agreement should also address what the employee or employer can do that can result in firing. For example, can employees be terminated if they are convicted of certain types of felonies during their employment, if they commit theft or embezzle from the company, or if they violate the employment agreement in some material way? Conversely, can the employee terminate the agreement with the employer if the company files for bankruptcy or violates some provision of the employment agreement? In either case, the contract should set forth the terms of severance in these situations or if the terminated party can sue the terminating party for damages or wrongful termination.

Compensation

This is a big issue especially when an employee is being compensated by means other than salary, including stock options or a seat on the board of directors. The compensation section of the employment agreement can also address conditions that would need to be met for raises or bonuses, such as work milestones or goals, or if the employer can reduce the employee’s compensation in the event of financial distress.

Benefits

This section should make clear what benefits the employer is going to be giving to the employee, including health insurance, life insurance, stock options, and disability coverage. It should also set forth the specific limits and amounts of these benefits, as well as the triggering events for the various types of insurance. The agreement should also address the number of vacation days or hours the employee is entitled to take per year, including sick leave, and whether or not those hours are bankable or must be used each year.

Confidentiality and Non-Compete Provisions

For particularly sensitive positions, the employment agreement may also include a confidentiality provision limiting the employee and employer in what information they can disclose publicly about the other. The employer may also require the employee to sign a separate, more comprehensive non-disclosure agreement that may be project-specific. Additionally, the employee may be required to sign a non-compete agreement, which could limit the ability of the employee to work for or start a competing business for a period of time following the employee’s departure from the company.  Non-compete agreements, however, are highly variable depending upon the state’s laws regarding these agreements and almost always require legal counsel to navigate the nuances of such an agreement.   

If you are an employer seeking to draft an employment agreement or you are a prospective employee trying to decipher or negotiate an employment agreement, contact the Law Firm of J.W. Stafford for assistance in a confidential setting with minimal hassle.