Top Eight Clauses to Include in an Employment Contract

By Steven Siegler

Many businesses of all sizes rely on employment contracts with their key employees, including executives, directors, managers, supervisors, and other critical personnel. Employment contracts delineate the employer’s and the employee’s respective rights and obligations and are intended to prevent problems from arising in the first place. If problems do occur, the employment agreement will specify the procedures for handling them.

There are many factors that go into an employment lawyer’s analysis of how to best preserve and protect their client’s interest through an employment agreement. Each client, each situation, and thus each contract, is unique. That said, there are a few common provisions that employment attorneys will seek to either include in a contract or rule out, depending on their client’s needs and goals. These clauses include:

1. Non-competition and non-solicitation. These type of clauses set the ground rules for what happens after an employee leaves the company. Generally, businesses want to be assured that their employees will not compete with them unfairly by taking clients or key personnel with them. It is important that these post-employment restrictions are fair and reasonable, or a court may not enforce them.
2. Confidentiality and non-disclosure. Employers with trade secrets and other valuable intellectual property often seek to protect these assets with confidentiality clauses and/or non-disclosure provisions. Such provisions generally provide that an employer may go directly to court to apply for an injunction if a breach is imminent or occurring.
3. Employment for a definite term or “at will.” The default term of employment is “at will,” meaning that either the employer or the employee may end the employment at any time. In certain circumstances, however, it makes sense for an employer to offer a key employee a guaranteed term of employment, such as a year or longer. In this way, the employer is assured that the employee will “stick around” and, on the other side, the employee is assured that they are guaranteed employment for a certain period of time.
4. Termination for any reason or only for “good cause.” The default in New York and many states is “at-will” employment, which either party can end at any time, for any reason. However, some employers may offer a key employee a contract which specifies that they cannot be fired except for good cause. It is critical that the term “good cause” is completely fleshed out in the contract so that both parties fully understand what does and does not equal good cause.
5. Arbitration. Arbitration is a dispute resolution mechanism which is often less expensive and more expedient than normal litigation. Arbitration clauses are favored by employers in many industries, not only because of the savings in time and money, but because arbitration is conducted without a judge or jury. Rather, a trained businessperson or lawyer acts as the finder of fact. The arbitrator’s decision is private and generally not appealable.
6. Classification of employee or independent contractor. Many businesses claim to employ independent contractors without fully understanding the term. Whether an employee is an independent contractor is usually up for debate – and if a business is debating with the labor department, the IRS, or an employee’s attorney – the battle is already lost. A well-drafted employment agreement which properly delineates the employment classification will prevent such debates before they start.
7. Bonus compensation. If an employer is offering bonus compensation to its employee, then a clear bonus plan should be detailed in the employment agreement.
8. Accelerated vesting if there is a change in control. Some contracts may provide for certain benefits, such as a pension, deferred compensation, or grants of stock or options. If so, a trained employment lawyer will seek to add a provision regarding what happens to such benefits if the company is sold.

Employment contracts are best drafted by experienced, knowledgeable employment lawyers who are fully familiar with their client’s needs and goals. Although there is an expense associated with hiring an attorney to draft an employment agreement, businesses save money in the long run by having a clear, customized, well-drafted agreement that your employee understands and can live by, and most importantly, one that a court or arbitrator will enforce. We see many cases where the main point of contention is what a poorly drafted contract actually means. This is one area where the maxim “you get what you pay for” is never truer. The Labor & Employment team at KI Legal prepares customized, clear, and enforceable contracts for its clients every day. We want to help protect and preserve your business.

This information is the most up to date news available as of the date posted. Please be advised that any information posted on the KI Legal Blog or Social Channels is being supplied for informational purposes only and is subject to change at any time. For more information, and clarity surrounding your individual organization or current situation, contact a member of the KI Legal team.  

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