Your company is ready to hire an employee. You searched the internet for free employment agreements. You finally found one you’d like to use. Here’s the problem: you don’t understand half the terms in the employment agreement and, more importantly, how those terms are going to affect your business moving forward. In today’s post, I’ve highlighted some of the key terms in a standard employment agreement and noted how they may affect your business.
Most employment agreements will include provisions that detail the employee’s duties, term of employment, salary, employment start date, and any included benefits of the job. You’re likely familiar with these terms, since you probably drafted them yourself. However, there are certain other provisions that generally accompany the employee-specific terms, and it’s these “other provisions” that may affect you and your business. Below is a (non-exhaustive) list of general provisions in an employment agreement. Becoming familiar with these terms and how they affect your business is important so you can protect your business and negotiate more effectively.
- Confidentiality: this provision requires your new employee to agree to not share any information about the details of your business, or your business’ secret processes, plans, formulas, data, etc. Generally, the employee is required to maintain his or her confidentiality beyond the employee’s employment with the company. In addition, once your business’ information is released to the public it is no longer confidential information.
- Noncompete: this provision requires your new employee to agree that for a certain amount of time after he or she stops working for you, the employee will not become employed by a direct competitor (any company engaged in a similar type of business), and the employee will not open a new company that will directly compete with your business or solicit your customers. Be aware that these provisions are only valid if they are limited by a reasonable duration and location. There is no precise measurement for what is reasonable, and considerable litigation has resulted due to the lack of clarity on this matter.
- Exclusivity: this provision requires your employee to promise that as long as he or she works for your company the employee will not work for any direct competitor engaged in the same or similar business as your company. You can also extend this provision to require the employee to promise not to become a shareholder or director of any direct competitor, or provide services to any direct competitor.
- Assignment of Inventions: this provision applies to situations where an employee invents things as part of his or her employment. You can require the employee to agree that anything invented at work becomes the employer’s invention, not the employee’s own invention. In Washington, for this assignment to be valid the invention must have been created at work, with employer property, or directly related to the employment, i.e. the employee created the invention according to the direction of the employer. You must include specific language for your assignment provision to be valid. There are also complexities surrounding copyright law relating to “works made for hire.”
- Termination: this provision states that either party may terminate the employment agreement for any reason by giving a certain amount of notice. You can also provide for the right to terminate the agreement without notice if the employee violates the agreement in any way. Also, this provision will generally include your right to terminate the agreement if the employee becomes permanently disabled such that the employee can no longer perform his duties.
- Arbitration: this provision provides that if a dispute arises between you and the employee regarding any aspect of the employment relationship, they will submit the dispute to arbitration rather than seek resolution by a court of law. The arbitration clause may include certain details about how the arbitration is to proceed, whether the decisions will be binding, and how the parties will choose an arbitrator.
Keep in mind, this list of key provisions of an employment agreement is not exhaustive. Employment agreements can be, and should be, custom-tailored to meet each business’ specific needs. Whether you find a free sample employment agreement online, or you draft your own terms of employment, it’s important you understand what exactly you’re agreeing to.
If you’re looking for help drafting your employment agreement, please contact the us at inVigor Law Group to assist you. You can also submit your question to us through our free, confidential Q & A service.