Employment Law

Employment Agreements: An Overview

• An employee agreement, also known as an “employment contract” or an “employee contract,” will generally include the conditions which the employer and the employee will abide by in addition to other terms, such as wage/salary, employment duration, work schedules, vacation time, insurance, severance pay, termination, and more.
• There is generally no need to renew an employment agreed me and they will extend throughout the employee’s duration with the company unless the employment is limited to a certain period or meant to achieve a single goal.
• Employment agreements and contracts are generally binding on both the employer and the employee, which reduces the chance that either the employer or employee will need to take legal action against the other. Accordingly, the more detailed the agreement, the better, and the more legal protection given to both the employer and the employee alike.
• Generally, in states that permit employment agreements, all employees, no matter whether they are working 40 hours per week or less, should be expected to sign an employment agreement.
• There is no need to re-write new employment agreements with each passing year.
• Should the employee’s duties change, or when an employee is promoted (or demoted), changes to the employment agreement might be necessary and the employer can ask their employee to sign the updated agreement.
• In a state where employment agreements are valid, and an employee will not sign an employment agreement, the employee is ostensibly declining the position. Under these circumstances, the employer does not have to hire them or continue to employ them.

 

Employment Agreement Types

• The employment type will typically determine what provisions will be in the employment agreement.
• Generally, there are 9 contract types that cover various employment scenarios, including: (1) Full-Time Agreements; (2) Part-Time Agreements; (3) Zero-Hour Agreements; (4) Casual Agreements; (5) Freelance Agreements; (6) Union Agreements; (7) Executive Agreements; (8) Fixed-Term Agreements; and (9) At-Will Agreements.

 

Full-Time Employment Agreements

• Full-time employment agreements will generally be very robust and contain many components. This is because full-time employees have the most protection under state and Federal labor laws, which will broadly govern hours, pay, PTO, an employer’s obligation to provide insurance, etc., and because the employment is permanent or ongoing.
• Because this employment type generally provides the most protection, the employment terms will most likely be memorialized written employment agreement to avoid ambiguity and employer liability should a dispute arise under the agreement.

 

Part-Time Agreements

• Part-time employees generally work reduced hours (35 hours or less) and receive much less protection under state and Federal labor laws alike. This is because most employers only must provide insurance and other employment privileges to employees working over 35 hours each week.
• However, even though part-time employees generally do not receive as many employment privileges as those working 40 hours a week or more, part-time employees are generally viewed as more permanent or at minimal have an ongoing employment relationship with their employer.

 

Zero-Hour Agreements

• These employment agreements are not very common in and around the U.S. and are more widely used in places like the United Kingdom. This is likely to do the vast protection extended to employees under U.S. labor laws.
• Zero-Hour agreements are employment agreements which state that the employer does not have to provide certain hours each week.
• Ostensibly, an employer could decide to have the employee work “zero” hours any given week, hence the name “zero-hour Agreement.” Although the employer does not have to provide an employee with any hours, the employee is supposed to remain available in the event their help is needed.

 

Casual Agreements

• Casual employment agreements are generally used in the “gig economy”—think Uber drivers and people who make deliveries through Grub Hub, Door Dash, and Instacart.
• Note that in many states, workers such as these are considered independent contractors, and there may be no real employment agreement involved.
• While some casual agreements may provide the minimum working hours the employer will extend, some won’t.

 

Freelance Agreements

• “Freelance employment agreement” is a bit misleading, as workers engaging in “Freelance” work are not really employees. Rather, they generally work with multiple employers (or clients) handling various tasks and assignments.
• They receive no employment privileges, such as insurance, and they pay their own taxes. They usually can set their own hours and rates.

 

Union Agreements

• Union employment agreements, also known as “collective bargaining agreements” (“CBA”) are legal contracts entered into by employers and designated person(s) representing several employees.
• The collective bargaining agreement will contain many terms and provisions, some which are required or permissible under National Labor Relations Board, which regulates and oversees collective bargaining agreements across the U.S. Other provisions are completely prohibited, such as provisions stating that the employer will only hire union employees or involve discriminatory practices.
• Common subjects discussed in CBAs are wages, overtime, grievance procedures, seniority, discharge procedures, recalls, discipline, and more.

 

Executive Agreements

• Executive employment agreements are generally made between a high-paying, high-ranking executive, such as a CEO or a CCO, and an employer that will contain more expansive terms than a regular employment agreement between an ordinary employee and their employer.
• These agreements will generally contain provisions relating to a minimum employment term, guaranteed based salary, bonuses, incentives, changes in control, severance, and the option to renew the agreement.

 

Fixed-Term Agreements

• Fixed-term employment agreements are essentially exactly what they sound like: an employment agreement extending through a certain period, which generally is used with seasonal or temporary workers.
• However, a “termed” employment agreement is not necessarily limited to any certain period and can generally last one to three years.

 

At-Will Employment

• In many states, employment agreements are not recognized as a valid contract and the employer can terminate the employee’s employment at any time so long as it is based on a legal reason.
• Valid reasons to terminate employment may include incompatibility amongst coworkers, poor customer service, the inability to show up to work on time, etc.
• However, even though the employer has the right to terminate employment at any time, the employee also has the right to resign at any time.
• Any employee who has entered a valid employment contract with their employer is not considered an at-will employee.

 

Written vs. Implied Employment Agreements

• Where there is no written employment agreement between the employer and employee, there may be an implied employment agreement. This usually occurs when the employer makes certain commitments to an employee, such as a promise that the employer will provide the employee with a raise each year.
• However, where a verbal promise or commitment is made and that term is not contained in a written contract that is later executed, the verbal promise will generally not be held as valid.
• A verbal employment agreement is generally limited under the Statute of Frauds (we’ll abbreviate it as the “SoF” here). The SoF is designed to place limitations on certain oral contracts’ validity.
• Here, with respect to employment agreements, oral or “implied” employment agreements generally do not muster protection under the SoF because most employment contracts extend beyond a year unless stated otherwise.
• It is important to realize that whether the contract can be completed within a year is not based on whether it ended within a year. Rather, it is based on the employer and/or employee’s intent when the contract was created.
• It should also be noted that, even where no verbal promises are made, certain documents, such as employee handbooks, also serve as an implied contractual agreement. Accordingly, when an employee signs an acknowledgement agreeing that they understand and will abide by the employee handbook, an implied employment agreement is created.

 

Writing an Employment Agreement and What to Expect

1. Title and the Parties’ Names

• Although it may seem very basic to include a Title on the employment agreement, this is an element that should not be overlooked. It should be clear to the employer, employee, and any third party who might need to review the agreement should a dispute arise, what the document is.
• It is easy to understand why naming the parties to the agreement is a good idea. It will clearly show that a contract existed between the parties and no guesswork need be involved in determining who is bound by the contract’s terms.
• For this reason, it is also important to make sure that the parties are correctly named.
• Consider writing out the whole business, employer, or company name in addition to the employee’s entire name.

 

2. Include All Employment Terms and Conditions

• You generally will know what to expect to see in an employment agreement with respect to terms and conditions, such as pay, a start date, whether a 401K, health insurance, and PTO will be provided, etc.
• However, there are less-common terms and conditions, such as non-compete and trade secret provisions that an employee could see, which will be discussed at length below.

 

3. Use Contract Terminology

Both employers and employees need to know certain contract terms prior to writing an executing an employment agreement. Here are some common terms used in an employment agreement:

• “Express Terms.” Express terms are terms that are written in the agreement, or terms verbally agreed to prior to or at the time the agreement was made.
• “Implied Terms.” Certain implied terms are terms that are customary or generally used in the practice without being verbally expressed or written into an agreement. Certain implied terms can be overridden by express terms contained within an agreement.
• “Condition.” A condition is generally an essential term in an employment agreement.
• “Breach.” A breach occurs when either party, or both parties to the agreement, do not live up to the agreement’s terms or do not comply with the agreement’s conditions.
• “Damages.” When either the employer or the employer commits a breach (explained above), the breaching party may owe damages, usually money, to the other party, to make them whole.
• “Governing Law.” The governing law is the local, state, or union laws that are applicable to the contract. The governing law will be used by a Court or another legal authority, such as an arbitrator, to interpret the contracts and make binding decisions when a dispute arises between the parties.

 

Employment Agreement Components

Job Responsibilities

• It is important that the employment agreement clearly lays out and explains the employees’ duties and responsibilities.
• Doing so will not only allow the employer the opportunity to clearly explain what the employer is expecting, but also ensures that the employee knows what to expect. There are several ways employee responsibilities can be explained in an employment agreement.
• For example, an employer may break down an employee’s work responsibilities with percentages (i.e., 50% corresponding with clients on their accounts, 20% imputing client's data and managing their accounts, etc.).

 

Probationary Period Clause

• Like a clause explaining what will happen should an employee not adequately meet the obligations the employer has set, it is not uncommon that an employer will include a clause conditioning continued employment on the employee’s ability to last through a probationary period, which is generally around three months.

 

PTO, Holiday and Overtime Pay, Insurance

• It is quite common to see provisions relating to PTO and holiday pay in an employment agreement.
• This not only helps the employer places limits on pay during these periods, but it also allows them more control over when employees must work and how much an employer must pay them.
• When examining provisions related to overtime pay in an employment agreement, it is important to understand what regulations an employer must abide by. The Fair Labor Standards Act (“FLSA”) generally, governs certain provisions such as overtime pay.
• Under the FLSA, exempt employees are not required to receive overtime pay. Exempt employees are salaried employees, or those employees who receive the same amount each week, month, or year, without regard to how many hours are worked.
• Nonexempt employees, or those employees who are not salaried, must be paid overtime pay when they work over 40 hours per week.
• However, the FLSA, like all national regulations, only set minimum requirements and state and local laws may provide additional regulations, or increased protections, to both exempt and nonexempt employees.

 

Non-Compete Clause

• Many times, employers will put non-compete clauses in their employment contracts to prevent an employee’s ability to leave their company and work in direct competition with the employer.
• However, a non-compete agreement does have limitations and is not open-ended; a non-compete clause must be limited by time and geographic location.
• For example, a no-compete clause cannot broadly restrict the employee’s ability to ever work in the same industry again.
• However, the clause may require that the employee not work with the employer’s competitors during a six-month period, which would likely be seen as reasonable. As it concerns geographic location, the same idea applies.

 

Trade Secrets

• Trade secrets are generally known as anything unique to a business that would provide a competitive advantage to another person or business.
• Trade secrets can include certain designs, processes, algorithms, instruments, patterns, commercial methods, advertising strategies—almost anything, really.
• The key to determining what might be considered a trade secret is not so much connected to the actual algorithm, pattern, etc.; it’s whether the data would provide other businesses with a completive advantage.
• Considerations that should be made in determining whether the data at issue could be legally protected as a trade secret include: (1) the steps taken the guard its secrecy; (2) how much money, time, and resources have been expended to developing it; (3) how well known it is outside the employer’s business; (4) its potential value to other businesses; (5) the ease in duplication, and more.

 

Disputes and Arbitration

• Many employment agreements will contain clauses explaining what the procedure will be when an employer and their employee(s) can’t agree.
• A common way to handle an in-house dispute is through arbitration, a voluntary, consensual process which is like a court hearing in many ways.
• An arbitrator is a neutral third party who will make a binding decision based on the circumstances presented to them. This can be contrasted with mediation, which, although voluntary, is not binding, meaning either party can withdraw their consent to agree.

 

Employment Agreements: Advantages and Disadvantages

Advantages

• Probably the most recognizable advantage in utilizing employment agreements is that it tends to deter employees leaving to work at or with another company, as doing so would be breaching a contract and could result in the employer suing the employee and obtaining money damages.
• An employment agreement can also allow the employer to have more control over the employee’s work-related duties and responsibilities by spelling each duty and obligation out in the agreement.
• While under these circumstances an employment agreement serves as an advantage to employers, an employment agreement can also serve as an advantage to employees by giving them employment security.
• When an employee has more than one possible employment prospect, a company that presents a lucrative contract may have an advantage over a company that doesn’t.

 

Disadvantages

• The downside in electing to use employment agreements is that there is little an employer can do should they be negatively impacted by the economy or experience other related issues or when the employee does not live up to the employer’s expectations once the agreement has been executed.
• Because the employment agreement is binding on both the employer and employee, any termination inconsistent with the agreement’s terms will likely constitute a breach and monetary penalties can be imposed on the employer.
• Accordingly, even when the need to terminate the employee is be based on a valid reason, or even there is a situation over which the employer has no control over that necessarily should result in the employee being terminated, an employer can likely only attempt to renegotiate the agreement with the employee.

 

Consulting with an Employment Attorney

• Both employers and employees should consider having a labor and employment law attorney review their employment agreements.
• Employers should make sure that the agreements they intend to execute are compliant with national and state regulations to avoid liability.
• With respect to employees, although most employees can rest assured that it isn’t necessary to have an attorney review an employment agreement prior to signing it, an employee should consider consulting with an employment and labor law attorney should they, or when they, have any concerns prior, or after, signing an employment agreement.