The Legality of Employment Contracts
Employment contracts are written agreements that outline the terms and obligations of the relationship between employers and employees. Once executed by both parties, for the most part, the contracts become legally binding in most states. Usually, the agreement gives the company some advantage over the worker when it comes to ending the relationship. If the contract offers a set duration, the agreement gives the employee some job security.
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Significance
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Employers can choose to offer employment contracts to all, a portion, or none of their employees. Usually, a firm will have high-level executives and other key employees sign employment agreements. This practice does not violate the law as long as the employer does not base it on factors such as race, gender, or some other "protected status" under federal and state laws.
Benefits
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One of the advantages of an enforceable employment agreement lies in the control the company has when an employee leaves the company, especially if the employer makes a large investment in terms of training . You can lock the employee into the firm for a period and require an advance notice when the employee leaves, which gives you time to hire and train a suitable replacement.
The contract cannot compel the employee to work for your company, but you can include rewards or penalties for keeping or breaking the agreement. Employers can also use employment contract to protect the company's trade secrets or to keep an employee from opening a competing business down the road.
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Features
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The typical contract contains information on a variety of items, including job titles, duties, salary and benefits. Many employment agreements also have arbitration clauses that state that the employers and employees will settle any disagreements through the arbitration process and not the court system. In most cases, the arbitrator's decision binds both parties.
Many employment contracts contain a non-compete clause, which many courts will enforce so long as employers can prove the provisions protect their justifiable business interests and does not put undue restriction on employees' rights. Severance clauses can specify the employee's benefits in the event of a layoff, or in case the person resigns or the employer fires the worker. Termination provisions may include language on renewing the contract or the steps for termination.
Exceptions
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In California, courts will enforce non-compete provisions only in very narrow situations, such as when a business partner sells his portion of the business. However, employers cannot keep employees from going to work for a rival or opening up a business that competes with them.
Expert Insight
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According to the My Employment Lawyer website, an employee needs to think about the consequences of the employment agreement before signing the documents. Think about your future and negotiate clauses upfront. My Employment Lawyer states that should you decide to break the non-compete contract or clause, the former employer may sue for breach of contract. The court may enter an injunction against you, putting your new job on hold or preventing you from operating a new business during litigation.
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References
- Photo Credit signing a contract image by William Berry from Fotolia.com
