Employee contracts should describe the relationship between companies and people they hire or contract for work. Employee contracts also protect the legal rights of both parties.
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:
- Compensation levels
- Performance expectations
- Available remedies when performance metrics are not met
- Obligations of all parties following a termination
- Applicable state laws governing the contract.
Determine the objectives for entering into formalized employee contractsContracts 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.
Department of Labor's Employer Web page for information on federal requirements governing employer-employee relationships.
Consult legal counselOnce you have a list of objectives concerning the need for legal agreements, ask your legal advisor about drafting contracts for key employees.
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 contractsWhile 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.
Initiate periodic contract reviewsJust 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.
- 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.