Guide to Employee Contracts

How to create agreements that stick

By Mark Ingebretsen, Creative Project Manager, Stonehand Publishing

Many employee contracts cover typical employee-employer situations. However, contracts written for top-level managers and persons dealing with proprietary information often require extensive negotiations that involve the legal representatives of both parties. Whether simple or complex, employee contracts typically cover:

1. Compensation levels
2. Performance expectations
3. Available remedies when performance metrics are not met
4. Obligations of all parties following a termination
5. Applicable state laws governing the contract.

Action Steps
The best contacts and resources to help you get it done

Determine the objectives for entering into formalized employee contracts

Contracts vary greatly by position. With top executives, for example, they might focus on performance and compensation, while contracts with mid-level management might be primarily designed to prevent the transfer of proprietary information to competitors. Still other, more generalized employee contracts may outline basic information such as compensation levels, start dates and situations that may require special remedies.

I recommend: This HR Magazine article describes the evolution of employee contracts. Find similar advice on FindLaw's "Interviews and the Hiring Process" Web page. Browse the Department of Labor's Employer Web page for information on federal requirements governing employer-employee relationships.

Consult legal counsel

Once you have a list of objectives concerning the need for legal agreements, ask your legal advisor about drafting contracts for key employees.

I recommend: This comprehensive book and CD, Corporate Counsel's Guide to Employment Contracts, contains a list of critical contract provisions. Find attorneys skilled in employee relations at LegalConnection. Consult the DOL's FirstStep Employment Law Advisor, an online tool that helps small company executives determine what federal laws apply to their industry. Find information on applicable state employment laws via this DOL index.

Determine when or if to use standardized employee contracts

While top-level executives and those working in sensitive areas may require detailed information, your legal representative can advise you if standardized contracts available on the Web and elsewhere may be sufficient to cover others who work at your company.

I recommend: The Web sites LawDepot.com, FindLegalForms.com, Urgent Business Forms.com and Socrates contain downloadable employee contracts.

Initiate periodic contract reviews

Just as a contract clearly spells out the expected relationship between employers and employees, employee performance appraisals and reviews measuring how well contract provisions were met should also be standardized to insure fairness. To avoid the legal complications that could result from poor performance reviews, some firms use software products to guide their review process while others may call upon outside experts for assistance.

I recommend: The software firms Cornerstone OnDemand, HRAdvance and Halogen Software are among those that offer performance-management and review products.

Helpful advice for making the most of this Guide

• •  When drafting contracts, consider any and all federal and state anti-discrimination regulations that may be applicable.
• •  Encourage employees to consult with their own attorneys before signing a contract.
• •  Question employees on their reactions to employee contracts during exit interviews.