In our last blog, titled ‘4 Common Legal Mistakes Made by Small Businesses: Legal Mistake #2 Not Receiving Key Agreements in Writing’, we discussed the importance of drafting written agreements when it comes to protecting you and your business.
Similar to agreements made with business partners, small business owners (or any business owner for that matter) should have properly drafted employment contracts. Employment contracts are a legally binding agreement between you and your employee which provides protection to both parties.
These contracts establish your company’s relationship with employees by outlining rights and obligations and helps mitigate liability and other risks, such as the release of confidential information.
A good employment contract should consider the following six factors:
1 - Type of work
When drafting an employment contract, it is important to outline whether the position is temporary or permanent, part or full-time. It should also address whether the individual is an employee of your company or and independent contractor.
2 - Term
Employment contracts often include a reference to the duration of the employment relationship. This term can either be fixed or for an indefinite duration. The only time a date needs to be listed is if the individual is in a contract position and is to leave on a specified date or when a project is complete. The benefit of including an end date is that the employer is not required to give reasonable notice as the end of the relationship as anticipated.
It is important to note, however, that providing a fixed term of employment to an employee who was intended to be a permanent employee could nullify portions of the employment contract.
3 - Termination
Each employment contract you agree upon should specify offenses that can lead to the individual’s termination. This ensures that your employee does what is required of them and limits the likelihood of a serious violation. It is important that anything listed in this section of the contract meets legal requirements of the jurisdiction you operate in.
4 - Non-competes
Non-competes are an effective way to keep your confidential information close to the chest by preventing employees from divulging it to others. You could go as far as to prevent an employee from working for a competitor, but you must ensure this stipulation also meets jurisdictional requirements.
5 - Duties and responsibilities
The duties and responsibilities of both you, as the employer, and the employee should be clearly defined in the employment contract. This section of the contract should also include salary, benefits and overtime requirements/incentives.
In addition, you will want to consider your right to shift the employee to a different position if needed.
6 - Dispute resolution
When drafting your employee contract, as with any key agreement, you will want to outline the process for resolving any disputes so that you can minimize the money and time spent settling the issue at hand.
Arbitration is an effective alternative but is not recommended for all situations. You will also want to determine whether the jurisdiction you operate in has specific employment dispute channels.
In addition to these areas of the contract, you may also want to consider probationary periods, reimbursement for expenses, vacation and policy manuals that the employee is required to adhere to.
To discuss the implementation of employment agreements at your small business or any of your other possible business needs, please contact us today.
