An employment contract is a signed legal agreement between an employer and their employee. The contract spells out the rights and responsibilities of each party. Employment contracts are not required under the law, but they can help employers protect their business and themselves.
Here are the items that are commonly included in an employment contract:
- Position and Title
An employment contract should clearly state the position and title that the employee is being hired for.
An employment contract should contain details relating to compensation. It should state the type of compensation: wage, salary, or commission. The dollar amount and when the employee will be paid should be included along with any overtime policies for hourly, non-management employees.
The days and hours that the employee is required to work may also be included in an employment contract.
- Duration of Employment
An employment contract may contain the length of time that the employee is expected to work for the employer. The duration may either be on-going or for a set period. The contract can set out the conditions under which the employment can be extended, reduced, or terminated. Employers should be aware that if they have a duration provision for a set period of time in an employment contract, they may be required to pay their employees for the entire period, even if they fire them earlier.
- Responsibilities of Employee
An employment contract may include the general duties that the employee is expected to complete while employed. This section will be unique to every position but can consist of things such as production goals, the maintenance of professional licenses, and guidelines for performance reviews, promotions, and bonuses.
There should be a section stating any benefits that the employer will provide the employee, such as health insurance, dental insurance, life insurance, 401k matches, stock options, profit sharing, vacation time, and paid sick leave. If the employee is paying a percentage of the benefit premiums, this should be included. Additionally, if professional licenses are required for the position, the contract should outline who will pay for acquisition and membership dues.
The circumstances under which either party can terminate the employer/employee relationship. Most employees are at-will employees. At-will means that the employer can terminate the employee at any time and for any reason (except for those that violate discrimination laws). Conversely, the employee can quit at any time and for any reason. However, sometimes employees can only be fired for cause. If an employee must be fired for cause, the contract should include the triggering events for termination, such as fraud, dishonesty, and illegal offenses.
The employment contract should also contain the notice that is required for termination and how the employee or employer should send the notice. If the employer is providing severance to employees, the conditions should be outlined in the contract.
Sometimes employment contracts contain non-compete agreements. Non-compete agreements say that if the employee leaves the company, he or she will not work for a company that competes with the employer under certain conditions. Not all non-compete agreements are valid in Arizona. The non-compete cannot be overly broad and unreasonable. It must protect legitimate business interests and be limited in scope and duration. Non-compete agreements are sometimes drafted separately from the employment contract.
Employment contracts may also contain a non-disclosure clause. With a non-disclosure clause, the employee agrees to keep trade secrets and other proprietary information and materials private. The non-disclosure clause applies both during the term of employment and after it ends.
A non-solicitation clause limits a former employee from stealing a current employee or customer for a certain period of time. Non-solicitation clauses are particularly helpful for companies that rely on on-going business from the same person or company, for example, hair salons, medical practices, or law firms.
- Dispute Process
Many employment contracts contain a section describing how disputes will be handled and whether there is an arbitration process instead of going to court. Arbitration can help a business avoid the time and expense of a lawsuit. Additionally, there should be a choice of law clause, which says which state law is applicable. Finally, there should be a clause stating who will bear the cost of litigation.
Finally, an employment contract should contain a provision that states that if one provision is deemed illegal, the other parts of the agreement will remain valid and enforceable.
Your Phoenix Business Planning Attorney
Employment contracts are not one-size-fits-all, and you should consult with an experienced Phoenix business planning attorney to ensure that your employment contract is enforceable and meets your needs. Nicole Pavlik is an experienced business planning attorney based in Phoenix, Arizona. Call Nicole Pavlik Law Firm today at 602-635-6176 to schedule a free consultation.