How to Write a Good Employment Contract

How to Write a Good Contract .EmailMost employees do not work under employment contracts. However, they are common in some industries and with certain employees like executives and high-level professionals.

Good employment contracts clearly set out the rights and obligations of both parties, define key terms, and address all issues that can come up in the employment relationship. They are written in plain language so non-lawyers can understand them. They contain no ambiguities or inconsistencies. Good contracts reduce the risk of misunderstandings and may reduce the likelihood of costly, time-consuming disputes.   

Good employment contracts contain:

  1. Introduction – identifies the document as an employment contract, notes the effective date of the contract, and identifies the parties, typically the employer’s entity type (e.g., corporation, LLC, LLP).

  2. Recitals – clarifies the parties’ intent in forming the contract and provides key background information about the parties including a detailed description of the employer’s business and specifying the consideration the employee will receive for the contract.

  3. Employment – specifies if employment is to be at-will, meaning that it can be ended by either party for any reason.

  4. Term – specifies the term of the agreement – typically between one and three years. Specify that the contract does not automatically renew at the end of the term.

  5. Compensation and Benefits – outlines what the employee will receive in exchange for his or her work (e.g., salary, other compensation, insurance, paid time off, or other benefits). Do not include anything that is not absolute (e.g., raises or bonuses contingent upon factors yet to be determined).

  6. Duties and Responsibilities – specifically describes what the employee is expected to do for the employer.

  7. Expenses – discusses how business expenses will be handled.

  8. Restrictive Covenants (Optional) – describes any restrictions on the employee during and after employment such as those on outside employment, non-solicitation, and non-competition. Restrictive covenants must be reviewed by counsel to ensure compliance with state law and must be reasonable under the circumstances. Include a “blue pencil” clause allowing a court to rewrite a restriction it finds to be unreasonable while giving the employer the maximum protection the court will allow.

  9. Protection of Employer Property (Optional) – describes the employee’s obligations to protect the employer’s confidential information, trade secrets, and intellectual property. This section must define the property to be protected and discuss permissible use and impermissible disclosure. Specify that under the work-product doctrine all things created by the employee during the course of his or her employment are owned by the employer.

  10. Termination – discusses how employment will end and what, if any, notice will be provided. Avoid “just” or “good” cause provisions and stick to at-will employment. Although notice is not required in an at-will employment relationship, it is generally desired by both parties. Employment may or may not continue during the notice period. If severance has been negotiated, this can be included here.

  11. Return of Employer Property – describes the employee’s obligation to return all employer property upon separation and may include the employee’s authorization allowing the employer to deduct from final pay or other monies paid to employee upon separation for unreturned or damaged property, consistent with state law.

  12. Disputes – specifies what mechanism will be used to resolve disputes (e.g., mediation, arbitration, or litigation) and what procedures will be followed.

  13. Remedies and Attorney Fees – specifies the remedies available for breach of the agreement including liquidated damages, where appropriate. Include an attorney fees provision; otherwise, the general rule is that fees are not awarded unless a law or rule requires it.

  14. Governing Law and Form – identifies the state law to be used to interpret the contract and the court disputes will be filed in.

  15. Notice – specifies where and to whom notice must be sent and when notice is effective.

  16. Entire Agreement – acknowledges the contract is the complete and final agreement between the parties and that there are no promises or representations other than those in the contract.

  17. Modification and Waiver – states that modifications or waivers must be in writing signed by both parties. Note that a failure of either party to enforce a provision of the contract is not a waiver and doesn’t mean it cannot be enforced later.

  18. Signatures – Acknowledges that the employee has had time to consider the contract and to consult with an attorney prior to signing. Two copies signed before the employee starts work –one for each party.