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Help Guide

A well-drafted employment agreement should protect the interests of both the employer and employee and be flexible enough to handle a variety of common potential disputes that may develop in the future. This help guide will detail information about important terms and considerations for this agreement.

Party Information

When identifying the parties, be sure to use the full legal names of the employee and employer. Note that the employer can be either an individual or business entity. If the employer is a business, be sure to include the type of business entity in the name of the employer; for instance "eDemand, LLC."

Employment Term

The term of employment may be for a fixed amount of time or indefinite term. An indefinite term will allow either party to terminate the employment relationship at any time, with or without cause. This is known as at-will employment, which is the most popular employment relationship in the United States.

On the other hand, under a fixed-term employment contract, the employee may only be terminated for cause while the agreement is in effect. Here, “just cause” means violating the agreement.

Job Description

Next, provide a general description of the employee’s duties. You do not need to add every individual service the employee will be responsible for because the agreement allows the employer to assign new duties that are reasonable within the scope of the agreement. Simply including the general job duties will suffice.

You will also be able to decide whether or not the employee is allowed to engage in outside employment for other businesses while performing the services under this agreement. This term is usually negotiated upfront with the employee to ensure all parties are on the same page.

Compensation and Benefits

You have complete flexibility in tailoring how the employee is paid, including by hourly wage, salary, salary plus commission, solely on commission, or your own custom pay structure.

Add any benefits being offered to the employee. You can skip this part if you plan on providing this information to the employee separately. When describing each benefit, it is sufficient to name the benefit and include a brief description of the key aspects.

Ownership of Intellectual Property

The employer will own all rights to any intellectual property produced by the employee under the agreement. This intellectual property is considered “works made for hire,” meaning that the employer has ownership so long as the work is completed by the employee while carrying out his or her duties on behalf of the employer. The employee will retain rights to any intellectual property produced outside of employment.

Dispute Resolution

It is usually a good idea to require that disputes be settled through binding arbitration. This is when an impartial arbitrator issues a legally enforceable ruling on the dispute in the same way that a judge would. However, by using the arbitration system, the parties can usually reach a resolution much more quickly and at a fraction of the cost compared to going through court.

Also select the state law that will govern any disputes. This is normally the state where the employee works.

Non-Compete

You can choose to include a non-compete clause to prohibit the employee from working for a competitor of the employer during employment and for a fixed amount of time after employment ends. Note that this is can be unenforceable if it is overly restrictive on the employee’s ability to find work in their chosen industry. Therefore, you should limit the term of the non-compete clause to as little as necessary to protect the employer’s legitimate interests. Normally, six months to two years is considered reasonable, depending on how fast-paced the employee’s industry is.

Confidentiality and Non-Solicitation

Confidentiality provisions will prevent unwanted disclosure of the employer's confidential information and trade secrets by the employee. You can choose to limit the non-disclosure requirement to a fixed period of time after the parties' relationship ends or only while the agreement is in effect. If these options will serve to protect the employer's interests, then it may be a good idea to limit the term. However, if the employee will be learning confidential information and trade secrets that will hurt the employer's business if exposed, then it is likely a good idea to prohibit their disclosure indefinitely.

A non-solicitation provision prevents the employee from adversely interfering with any of the employer's business relationships; for instance, by trying to lure away the employer's own employees or business contacts. The term of the non-solicitation should be limited as much as possible to not be overly burdensome on the employee while still protecting the employer's interests. Courts generally accept anything between one month and two years depending upon what is reasonable under the circumstances.

It is usually a good idea to include these provisions unless you want to outline them in a separate confidentiality agreement. However, these provisions will likely need to be negotiated between the parties upfront.

Termination

Next, specify how much advance notice is required when a party decides to end the contract. In many industries it is customary to require at least two weeks' notice of termination. However, it is completely acceptable to not require any notice.

Note that no notice is required to terminate the agreement when it is being terminated due to a violation of the agreement by the other party.

Additional Terms

Next, you may add your own custom terms and conditions. This is a great way to provide additional clarity regarding employment and to ensure that any promises made between the parties are recorded in the agreement. However, before doing so, be sure to review the agreement to see what has already been included for you.

As an example, you might require the employer to pay a cancellation fee (or "kill" fee) to the employee if the employer decides to end the contract early. However, if the term length is indefinite, then you will not be able to require a cancellation fee. Instead, consider requiring severance pay.

How to Execute Your Agreement

  • The employer and employee should sign and date the end of the agreement. You may use electronic signatures if it is more convenient for you.
  • The employer should provide a copy of the fully executed agreement to the employee and store their own copy in a secure location. Make an electronic copy as an additional backup if possible.

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