10 Essential Provisions for Employment Agreements in Texas
Not all businesses need employment agreements. However, many do. Agreements are particularly important for companies that hire (either as employees or as independent contractors) skilled labor to perform very specific tasks that are integral to the business of the company. The business wants to accurately describe the position so there is no misunderstanding and it also wants to prohibit the employee from doing certain things that could be very detrimental to the company. Below are some issues to consider when writing or reviewing an employment agreement. This article is written from the perspective of the employer, but it is equally important for the employee who is asked to sign an employment agreement to understand what is being asked of him.
1. Employee’s job
The employer should clearly describe the employee’s job. What exactly are you asking him to do? If you don’t describe the position, how will either of you know if he is performing satisfactorily? State whether you expect the employee to devote all of his work time and efforts to your company. You might want to prohibit outside employment with any other company that may be in conflict or in competition with your company.
2. Employee’s compensation
State the amount of the employee’s compensation, how it is paid, what benefits are associated with the position, whether there is severance in the event of termination of employment, whether he will receive company paid insurance, whether the company will offer him stock, stock options or phantom stock. State whether expenses will be reimbursed and the procedure for such reimbursement.
3. Physical exam prior to employment
State whether you require a physical exam prior to employment and if you have a drug testing program. If you require drug tests, have the employee agree to the release of the results of the testing to you.
4. Policies and procedures manual
If your business has adopted a policies and procedures manual, require the employee to become familiar with it and to agree to comply with it. This can be essential if you terminate an employee “for cause” but the “causes” for such termination have not been previously communicated to the employee.
5. Get permission to recoup the advance
If you ever pay money in advance, make sure to get permission to recoup the advance by withholding funds which would otherwise be paid to the employee during the term of employment or in the event of termination.
6. Notice of resignation
If you want the employee to give notice of resignation, give him some incentive to do so. For instance, you may pay severance if the employee gives proper notice but not if he does not. Even if you have notice provisions, make sure to protect your employment at will status and don’t inadvertently create a contract for continued employment.
7. Return any company property
Make provision for the return of any company property that may be in the possession of the employee. Cell phones, credit cards, tools, notes, books, manuals, keys, uniforms, ID cards all must be returned at the termination of employment.
8. Confidential information
Protect the company’s confidential information. Describe the information you want to protect and prohibit the employee from disclosing the information or using it for any reason other than for the legitimate business purposes of the company. This is particularly important if your company is involved with research and development or if dissemination of the information would have serious adverse consequences for the company.
9. Protect against unfair competition
Protect the company against unfair competition. Be sure to draft the noncompete clause in strict compliance with current law. The noncompete must be reasonable in scope, time and geographical area. It must also be related to protection of the company’s interest. For instance, if the company gives the employee confidential information, it is likely that the company’s interest in keeping that information confidential would support a noncompete clause. This is a frequently changing area of law, so it is best practice to periodically have the noncompete clause reviewed by a business lawyer who will suggest changes as necessary.
10. Nonsolicitation clauses
Nonsolicitation clauses can be very important. Most companies spend a lot of time and money recruiting and training good employees. You don’t want former employees, who know the skills and habits of current employees to solicit them for employment elsewhere. Likewise, you don’t want former employees to solicit your customers and suppliers.
While there is no magic to responsible hiring and firing, you can increase your chances of retaining productive employees and protecting your confidential information, work product, customer base and valuable employees with a well prepared employment agreement, written and periodically reviewed by a business attorney who is experienced in this type of contract.