Legal

What is an Employee Contract?

Legal

You’re ready to hire your first employee! How will you outline their duties? A contract? Probably not in California. An employee contract is rarely how you want to hire your first employee.

Most of the time, for at-will employment you will want to use an offer letter and job description to outline the expectations between you and your employee. This coupled with an NDA, non-solicitation agreement, and arbitration agreement is normally how you would outline at-will employment. Also, a solid employee handbook. That is your “at-will” trifecta.

However, sometimes an employment agreement makes sense.

When You Need an Employment Contract

When you are hiring c-suite or executive positions, and you want additional terms or to guarantee employment to someone you are trying to recruit and lock them in for a long period of time. You may also want to control when and how an employee can leave your company. You also may want to have additional control over their work.

However, keep in mind they are the exception to the rule. Why? Contracts get rid of at will employment and generally you have to terminate them for cause.

What’s in an Employee Contract?

Most commonly, employee contracts will include details about the main duties of the employee, compensation, employee benefits, and termination. They should also include IP protections, NDAs, non-solicitation, and other agreements you want to bind the employee by. Note: post-employment non-competes are generally a no in employment agreements for California businesses or residents. In fact, they can come along with civil penalties.

Can You Terminate an Employee Contract?

Keep in mind, an employee contract is a two way street. If you choose a term of 2 years, good luck getting out after 6 months if it is not drafted correctly.

Additionally, all contracts, including employment contracts, bring with them the covenant of “good faith and fair dealing” which essentially means that your need to treat that employee fairly. If you breach the contract, it will be up to a jury or arbitrator to determine not only the damages for the breach of the contract but also for any potential “bad faith” conduct.

Promising health benefits – canceling or changing them 6 months in due to cashflow issues? Breach of contract.

So buyer beware. Make sure if you are going down the employee contract road, you consult an attorney.

Slate Law or the attorney of your choice is here to help.

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