Quality v. Quantity: What Should Be Included in an Employment Contract?
“Is it usual for my contract to be this short?” “Are employment agreements normally this long?” I receive these types of questions often from employees and business owners who are either presented with or preparing an employment agreement. My answer, “It is the quality, not the quantity, of the information in the agreement that matters.”
Sometimes a short and sweet agreement is all that is needed. Generally, a short agreement reflects an at-will employment situation, where the employer or the employee can terminate the agreement at any time, for any reason. The agreement may go on to set out expected compensation (with a caveat that it is subject to discretionary change on the part of the employer), and set forth notice requirements that an employee must satisfy in order to be paid accrued (but unused) vacation time when the employment relationship ends. In other words, shorter agreements tend to resemble offer letters, with additional provisions designed to protect the employer, such as confidentiality or non-disparagement.
Longer agreements, on the other hand, tend to contain even more protections for the employer, and additional benefits for the employee. For instance, a longer employment agreement may contain restrictive covenants, such as non-compete or non-solicitation provision. The provisions may set specific limitations on the work that an employee can perform if the employment relationship ends. As a result, it is important to review and draft them carefully. It may also be appropriate to request or offer a severance to offset some of the financial uncertainty that might result from the employee's’ inability to practice within a certain area if his or her employment ends involuntarily.
While longer agreements can reflect at-will employment, sometimes, a more dense agreement includes a contract of employment for a term of years. For instance, the agreement may set forth that the employee is obligated to work for the company for two (2) years. If that is the case, the contract will likely contain provisions setting forth the penalties that will occur if the employee breaches the contract. To offset this requirement, an employee will want to negotiate for exceptions to the contract, i.e., situations where he or she is permitted to depart early without being in breach of the agreement. Similarly, an employer will want provisions that permit immediate termination without breach.
I have seen short contracts with many restrictions and long contracts that are all bark, but no bite. At the end of the day, it is the quality and significance of the content, not the length of the document, that is important. Regardless of its length, keep an eye out for the following:
- At-will v. Contract Employment
- Non-Competition and Non-Solicitation Provisions
- Termination Provisions (governing when and how the employment relationship can end)
- Compensation Provisions, including agreements regarding bonuses, reasonable reimbursement for business expenses, and benefits
- Arbitration provisions
- Requirements on Outside Business Activities
If you have been presented with an employment agreement and have questions on its terms or are a business owner looking to create a strong employment agreement, please contact us today.