Updated: Jul 3, 2019
Whether you are reviewing your first employment contract or are a seasoned worker reviewing a contract for a new job, it is important to take the time necessary to do a thorough review and make a decision that is right for you. It is important to understand that negotiations are part of the process. Many prospective employees are unaware that negotiation is an option, or fear losing the offer to a less-demanding prospective employee; others are simply happy to find employment, and momentarily unconcerned with what could later prove to be unfair or damaging terms. Binding employment contracts and/or side agreements are frequently sprung on new hires who are given little time to consider the terms, repercussions, and limits that come with signing these contracts. Companies often rely on this pressure to dissuade hirees from truly investigating the implications that signing such a contract can have on their short- and long-term career goals. If you find yourself required to sign an employment contract or employment-related agreement, it is important that you understand the basics of employment contracts.
What are the Components of an Employment Contract?
Generally speaking, an employment contract is designed to outline the specific business relationship between employer and employee. This generally include the following: agreed-upon compensation and pay intervals, benefits, vacation and sick leave, hours, codes of conduct, required duties, and non-compete clauses.
Most employment is “at-will, which means that an employer can terminate an employee at any time, for nearly any reason - with the exception of whistleblowing or protected class discrimination firings. In many instances, an employment contract simply reinforces that the employee was informed of all the terms of employment. In some cases, an employment contract limits an employer’s right to fire a worker. Such a contract would require an employer to retain the employee for a specified duration, only firing them in the event of specifically-outlined disciplinary situations, that is, for “cause”.
Employment contracts can be explicit or implied. Explicit contracts are those written, reviewed, and signed by both parties. Implied contracts are those agreed-upon through a series of verbal statements and actions, such as training an employee for job-related duties.
Pros and Cons of Employment Contracts
While it would seem natural for employment contracts to favor the employer, this is not always the case. The at-will nature of employment across the U.S. already provides employers with substantial powers to hire and fire needed. Business improves and they hire, business slows down and employees are let go. Standard at-will employment agreements and contracts should still be read carefully, and are primarily a guideline to the expected behaviors and responsibilities of the employee and employer.
Contracts that stipulate a specific length of employment are more complicated in their benefits and drawbacks. Employers may have problems firing a difficult employee if they break no contractual obligations and simply don’t fit the position or company. On the other hand, they may also benefit from stipulations that require a worker to give advanced notice (for example, 90 days) prior to leaving.
Non-compete Clauses and Agreements
This is one aspect of an employment contract that is undeniably one-sided and only benefits the employer.
Non-compete clauses were once used only in extremely competitive fields where employees routinely encounter proprietary or secret information, or for top executives who could go out and start competing companies. They were originally designed to prevent valuable, skilled employees from quickly turning around and working for a competitor, freelancing, or otherwise jeopardizing a company’s success - way to protect a company’s trade secrets. Now they are present in nearly every industry and at many employment levels.
The scope of a non-compete can be determined by geographic area, skill set/role/services, and duration. For example, an employee at Advertising Agency X in New Jersey may be required to sign a non-compete preventing her from working at a similar job at another advertising agency for a period of one year in the states of NJ, PA, and DE.
Non-compete clauses were traditionally used for skilled workers and management, but have now moved into the unskilled labor market. This got the attention of congress and several house democrats who called this “bullying under color of law as well as a violation of labor rights”. A bill was recently proposed in response to a controversial non-compete at a fast-casual sandwich shop. This bill would would make employees earning less than $31,200/year or $15/hour ineligible for non-compete clauses, regardless of industry.
The increased use of non-competes into nearly every industry and the range of restrictions imposed has raised concern and the courts are increasingly rejecting overprotective non-competes that effectively prevent any reasonable opportunity to be employed. Should you encounter a non-compete that proposes a period of longer than one year, a scope greater than three states, or any other restrictions that seem unusually far-reaching, it is advised to contact an employment lawyer.
There also are other side-agreements employers may have with employees (whether at-will or not) related to the employer’s trade secrets, confidentiality of customer lists and other information learned on the job. One should consult an attorney experienced in employment law before signing any of these agreements.
Are you currently reviewing an employment contract for a new career, or a proposed change in terms for a current job? Do you suspect that the scope of a non-compete agreement may be too broad, potentially negatively impacting your future, or would you like to negotiate another aspect of your contract? Contact the law offices of Leslie A. Farber, specializing in Employment Law, today.