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Drafting Effective Employment Agreements

It is becoming more and more common for employees at all levels to request employment agreements—not just executives anymore. Managers, supervisors, and specialists often prefer everything in writing, and this creates a burden on Los Angeles human resources departments and especially on small businesses. Our attorneys will assist your company by drafting effective employment agreements which can become the foundation for strengthening your company’s reputation and avoiding damaging disputes.

Employment at Will in California

While California has some of the most robust labor laws in the world, it is still an “employment at will” state. That means that either party may terminate the agreement at any time without specifying a reason. While some reasons are off-limits, such as discrimination, the employer can terminate any employee unless the employee has a contract in place. Even in these contracts, the language of California’s “employment at will” laws will be echoed here.

Why Do Employees Like Employment Agreements?

Employment agreements afford employees the opportunity to modify their at-will status. This then places the burden on the employer to outline valid causes for terminating the employment. Employees also like to have their compensation in writing.

Why Do Employers Like Employment Agreements?

Employers often like employment agreements because they clearly define the duties of their employee. Employment agreements can also provide a useful vehicle for restricting certain types of employee actions that may run counter to the interests of the company either during or after the contract is terminated. Employers may wish to draft nondisclosure clauses or retain the right to sue an employee who does not act in the company’s best interests.

What Does an Effective Employment Contract Include?

• Duties – On the employer side, the employee’s duties should be as broad as possible. If an employer drafts a contract in which the employee’s duties are defined narrowly, then assigning them work outside the terms of the contract can become a breach of contract. The duties should be defined generally, and the employer should retain the right to reassign the employee as needed. Here, the best rule of thumb is to keep your options open.
• Term – If the general rule of duties is to keep your option open, then the general rule of terms is that shorter is better. Employers have an incentive to keep the contracts as close to “employment at will” as they can. Shorter contracts fulfill this aim. For longer terms, employers may want to include language that allows either party to terminate the contract without cause upon two weeks’ notice.
• Termination and exit clauses – These are a bit like prenuptial agreements. An employer may want to ensure that the employee cannot leverage them under the terms of their contract and cost them millions on their way out the door. Severance packages may be included here, but employers should remain free to terminate employment at will. Companies that have paid little attention to exit clauses have found themselves paying millions to executives who no longer work for their company.
• Base salary, bonuses, and benefits – Employees like seeing everything that comes from continued employment with your company clearly laid out in writing. However, if the employee needs to be reassigned, the employer may want to change their benefits. This can be quite tricky. An effective employment agreement can prevent a lawsuit.
• Non-disclosure of trade secrets or other considerations – An employer will want to reserve the right to prevent an employee from divulging sensitive information. While certain types of information cannot be the subject of a nondisclosure, the lack of a nondisclosure agreement can leave an employer without recourse if a former employee retaliates against their former company.
• Non-competes and restrictive covenants – Non-competes have a bad reputation for being unenforceable. However, they can be the foundation for terminating an employee who has a fiduciary responsibility to the company that they are not upholding. Exclusive services language in the employment contract can avoid potential disputes.

Understanding Non-Compete Agreements in California

Executives and other employees with special access or control in the company have a fiduciary responsibility to only act in the best interests of their employer. Employers, during the term of the employment contract, can demand the exclusive services of that employee. It is only after the employment term has been concluded that non-compete clauses become more difficult to enforce.

In California, an employer may require an employee to sign a non-compete agreement. However, in most cases, the non-compete will be unenforceable. In other words, an employer can threaten to sue, but their lawsuit will be tossed before it reaches a jury. Employers need to show actual damages resulting from the violation of a non-compete, such as the theft of trade secrets. The non-compete will need to protect a specific business interest. The courts generally rule against employers attempting to enforce non-competes because there are situations where a former employee would not be able to earn any income if the terms of the non-compete were enforced.

California laws make it nearly impossible to enforce a non-compete or hold an employee accountable for violating a non-compete.

Confidentiality Provisions

This is where a lot of employment disputes are born. A skilled employee develops (for instance) an algorithm that is considerably faster than other similar algorithms accomplishing the same goal. The employee developed this algorithm using their own special skill set, education, but they did so on the company’s time. It is imperative that an employer have a written provision in place restricting the employee from taking their intellectual property with them once their contract runs out.

 In some cases, it will not necessarily be clear if the employee was working for the company at the time they developed the algorithm which can cloud ownership of the intellectual property. Some employees have faced lawsuits for code or other inventions that they developed on their own time independently of your company. However, if they used your company’s resources to develop the algorithm, you may be able to claim that it is your intellectual property.

 Call a Los Angeles Employment Attorney to Draft an Effective Employment Agreement

 When it comes to employment disputes, prevention is the best medicine. Call The Wright Law Firm Employment Lawyers today to discuss the individual needs of your company today.