How Employment Agreements Work and Work For You

Let’s talk about employment agreements. Hello? Have you fallen asleep already? They may be a little dry and boring, but important, as they are tools that increase the value of your relationships and help your company manage risk.

Do you need them? Please do not get advice from your buddy on the golf course on this question – unless he is an HR professional – as it could cost you $20K in a wrongful termination lawsuit. The advice usually takes the form of, “less is more,” meaning do not put the agreement in writing at all. We disagree. The first thing an attorney will ask is, “Where is the employee handbook?” Without one, there are no rules and if you get sued you will lose. Our recommendation is that you have agreements in place to set up expectations ahead of time and use what works best for your situation in accordance with the law.

Noncompetes – Not everyone needs one. The types of employees that are relevant are sales people (access to client lists), people who influence strategy like high level C suite, and engineers or others who write proprietary code and create intellectual property. The non-compete may not impede future employment, outlines what is and is not allowed, gives a timeframe, and sets the stage for legal recourse if you can quantify damages, i.e., loss of clients.

Confidentiality Agreements – These agreements overlap to protect sensitive technical or commercial information from disclosure to others. If the information is revealed to another individual or company, the employer has cause to claim a breach of contract and can seek damages. They also prevent the forfeiture of valuable patent rights, which happens often and is usually unintentional.

Severance agreements – With many moving parts and legal requirements, these focus on one key word – exchange. Typically, the agreement outlines the consideration (money) in exchange for language that implies “you (employee) will not sue me.” Severance agreements are appropriate in situations where an employee may feel the need to talk negatively about the employer in the marketplace. You cannot waive all rights, go beyond the legal boundaries, or ignore other laws regarding age discrimination or WARN Act (over 50 employees) requirements for mass layoffs.

Equipment agreements – Company provided cell phones, tools, hard hats, calculators, laptops, etc. are covered. For most companies, equipment is not addressed upfront and an employee may see a related deduction from their final check. That is not legal; however, you can pursue other means of compensation.

Bottom line: You are better off with employment agreements versus without them so that you can set expectations ahead of time and quantify your risk exposure.

Written by Jim Annis President/CEO of The Applied Companies, which provide HR solutions for today’s workplace. Celeste Johnson and Tom Miller, Applied’s division directors, contributed to this article.