What should be included in an Employment Contract?
The exact composition of your contract will depend on the nature of the relationship, the needs of the employer, state laws, and any negotiations that occur. Some of the most common contract provisions include:
- Compensation. This includes salary or wage, commissions, when paychecks are sent, paid time off, and benefits.
- Good faith clause and severance. A good faith clause requires the employee to work to the best of their abilities. A severance package may be outlined for layoffs and other terminations that are due to no fault of the employee.
- At-will employment. This is a statement about whether the employer needs a reason to terminate you (including a list of examples). It may also include policies for termination, such as returning your security badge and laptop.
- Non-disclosure agreement (NDA). An NDA is an agreement that you will not disclose certain information considered confidential. In this case, it's a clause in the Employment Contract restricting your ability to disclose specific types of information your employer considers confidential.
- Arbitration agreement. This is an agreement that all employment disputes will be handled through arbitration instead of lawsuits.
Even if you aren't handed a comprehensive Employment Contract, you may be presented with an arbitration agreement, an NDA, or some other narrowly defined but legally binding contract.
Will a noncompete clause limit my career choices after I leave?
A Noncompete Agreement restricts you from working for a direct competitor or starting your own competing business for a specified amount of time after leaving the company. It also protects intellectual property and other company-owned information, such as client lists, businesses processes, and specific methods. These clauses are not enforceable in every state, and they may have certain limitations in states where they are allowed.
Noncompete clauses can't be overly broad or they may be considered invalid in court. They must be limited by the following factors:
- Duration. It can't be for an indefinite amount of time; some states have legal limits (2 years for a noncompete agreement in Louisiana, for instance).
- Geography. It must be limited to a particular geographic region, such as a neighborhood, city, or region of the state.
- Scope. It can't prevent you from working for a competitor in any capacity, and must define a particular scope of work.
Noncompete clauses are meant to protect the employer. You may want to read any NDA or noncompete clause carefully to decide whether you can live with the terms. If not, you might consider negotiating to have the clause removed or be prepared to walk away. Employers in states that don't recognize noncompetes (such as California) may ask you to sign a non-solicitation clause. A non-solicitation clause keeps you from soliciting your former employer's customers for a certain amount of time.
Can an Employment Contract keep me from being fired for no reason at all?
Without an Employment Contract, your employer may end your employment without cause as long as they don't violate your rights (such as the right to not be discriminated against on the basis of protected characteristics like national origin or skin color). This is the legal concept of "at-will" employment. One advantage of having a contract is that you can negotiate for a more clear definition of the types of behaviors, actions, or conditions where termination would be appropriate.
Much of this comes down to how the term "cause" is defined in the contract, which you'll want to keep as narrowly defined as possible. Even if it sounds reasonable for your contract to say you can be fired only "for cause," that can mean just about anything. If it's defined as "any violations of company policy" or includes language leaving it up to the employer's discretion, it may not provide much protection for you.
Another protection to consider is including a "notice and cure" provision in your contract. This clause will give you an opportunity to correct a problem after you've been given notice, but before your employment terminated. Think of it as a "fix-it ticket" for your job. As long as you adequately correct the action in a reasonable amount of time (assuming the error was made in good faith), then it protects you from being fired.
Are there work contracts for independent contractors or consultants?
State and federal employment protections may not apply to you if you agree to work for a company or individual on a contract basis instead of as a full or "permanent" employee. These protections include payment terms and procedures for ending the employment relationship. However, you can still get protections into a written Independent Contractor Agreement. This also may be referred to as a "Statement of Work" (or SOW).
Since independent contractors provide specific services and manage their own work affairs themselves, these types of contracts tend to be much simpler than Employment Contracts. For instance, you can't be expected to restrict your work with other clients unless there's a clear conflict of interest. Nor can you expect any benefits or job security from a given client.
You can, however, include the requirement for reasonable notice before ending the employment relationship, which typically goes both ways. Your client, meanwhile, may include language about the type, volume, and quality of work expected in exchange for payment.
Make sure your employment contract protects you
If you've been offered a job, you may be presented with a contract, whether it's comprehensive or limited to an NDA or arbitration clause. Whatever the case, you'll be contemplating a contract drafted by the employer's legal team. They will make sure their interests are adequately covered, but it's up to you to determine whether the terms are fair to you as well. Be confident that what you're signing represents your best interests, and ask a lawyer, before you sign, if you have any questions.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
