Big City-Small Town Signing On Dotted Line?

Employment contract considerations, from an employer’s perspective.

Whether your business is in a big city or small town, there are numerous legal issues that can result from entering into an employment contract, and too often employers are unprepared for the consequences.

Before entering into such a contract, employers should keep the following in mind:

At-will vs. specified time for employment. Employees are generally presumed to be “at-will.” This means that employment relationships of unspecified terms can be terminated by either the employer or the employee at any time, with or without cause. Contracts for at-will employees are usually unnecessary, as employers typically have handbooks, policies, and procedures governing at-will employment. For higher-level executives, however, the employer may wish to specify the period of employment (thereby exempting them from the company’s at-will provisions) to ensure that they don’t terminate their employment unexpectedly.

Termination clause
Of all employment contract provisions, the termination clause can become the most significant in the event an employment relationship goes south. Indeed, it is this provision that establishes a legal standard by which a termination will be judged. A contract that maintains at-will status provides the greatest flexibility for the employer. If the employment relationship is not at-will, greater caution must be exercised. Termination standards of “gross negligence” or “serious and willful misconduct” are virtually impossible to establish in the normal employment relationship, even when performance has been severely inadequate. Therefore, the employer should use general “for cause” language, which gives the corporation wide latitude in the event there is a performance or economic problem.

Duties, authority, responsibility, and compensation
The employer should reserve the right to set and change the employee’s duties, responsibilities, authority, and other employment conditions at any time. Such a provision minimizes the likelihood of liability should the employer’s operations change leading to a corresponding change in the employee’s working conditions or terms.

Restrictions on outside business activities
The contract should establish the level of commitment expected of the employee. This commitment can range from a covenant to devote one’s full energy, interest, and productive time to the performance of his or her duties as an employee, to a covenant not to render services of any kind or engage in outside business activity without the prior written consent of the employer.