Employee Contracts - Basic Terms
©2019, Melissa C. Marsh.
By: Melissa C. Marsh
Although written employment contracts are generally better for both the employer and employee, in some situations, oral employment agreements may actually work to the benefit of an employee. This is because many of the terms that would be part of a written employment agreement are documented in paychecks and company employment manuals, which typically outline things such as vacations, paid holidays and sick leave. In addition, many state laws are designed to ensure employees are paid for overtime and protected from discrimination.
If you are presented with a written employment contract, make sure to review it carefully with a lawyer’s help. Take note that more often than not, a written employment contract or letter offering employment will generally save both the employer and employee both time and money in the event there is a dispute later.
Employment Contract Clauses and Terms.
A written employment contract should cover (where applicable) the following:
- At-Will Clause or Specified Term. Most employers prefer “at will” employment, in which either the employee or the employer can end the employment relationship at any time, with or without cause. But some written employment contracts guarantee employment for a certain length of time. This assures the employee that he or she will be employed for at least the specified term. At the end of the term, the employer can either continue the relationship, or end the relationship by simply declining to renegotiate the contract.
- Signing Bonus. If you have been recruited by a competitor, or promised a signing bonus, your contract should set out how and when any signing bonus will be paid, as well as whether you will be required to remain in the job for a certain period to keep the bonus.
- Relocation Expenses. If you are being required to relocate, and your future employer has promised to pay your relocation expenses, your written contract should specifically set forth how your new employer will reimburse you, the maximum you may spend, and whether you will be required to stay at the job for a certain period to keep your relocation reimbursement.
- Expense Reimbursement or Expense Allowance. An expense allowance, whether for relocation, a cell phone, use of your vehicle, etc. is generally preferable to reimbursement of out-of-pocket expenses because expense allowances may be tax exempt.
- Stock or Ownership. If your new employer has offered stock options, or other ownership interests, you will want to nail down the terms, including the purchase price, vesting period, and opportunities for additional grants.
- Termination Clause. Most written contracts will contain a termination clause. Often times, these clause will provide the employee with some protection in the event of a layoff or firing by specifically addressing such issues as severance pay and purchase periods for stock options.
- Noncompete Clause. Despite all of the law, despite the huge penalties an employer may face as a consequence of such a clause, employment contracts still often include a clause that bars employees from competing with their former employers for a certain period after they leave the company. These clauses are generally null and void in California, unless specifically limited to the disclosure of the Employer's trade secrets..
- Arbitration. Employers sometimes propose arbitration because it allows for a dispute to be decided by a neutral third party rather than by a jury. Arbitration also tends to be a quicker way to resolve disputes. Take note that these clauses are often included to protect the employer, not the employee.
- Attorney's Fees. An “attorney's fees” clause can be a double-edged sword. Employers tend to shy away from them because if an employee sues and wins, the employer will not only have to pay his own attorney, but also the fees incurred by the employee. By the same token, an employee could also end up on the hook for the employer’s attorneys' fees if he or she loses.
- Entire Agreement. Keep an eye out for a provision that says your contract constitutes the entire agreement of the parties. Although it's standard language, it could have far-reaching effects, since any oral understandings or other agreements will be specifically exempted and thus unenforceable.
Employees and Employers: Employment Contracts Should Be Reviewed By An Attorney
Whether you choose to negotiate a written employment contract, or just accept the one offered, make sure to review it with an attorney BEFORE signing it.