As an employer, you'll want to consider having formal agreements with your employees to memorialize the terms of employment, protect you from competition by former employees and protect your confidential information.
A small business or employment lawyer can advise you on the types of agreements that are appropriate for your business and can draft agreements that are legally sound and meet your business's particular needs.
Here are some of the most common types of employment agreements:
An Employment Agreement
In almost every state, employees are presumed to be ’at will,’ meaning they can quit or be fired at any time, for any reason (other than for reasons that violate state or federal law). An employment agreement can confirm this ’at–will’ status, it can specify that an employee can only be fired for certain reasons, or it can provide that the employee will be employed for a specified amount of time and can only be fired with good cause.
An employment agreement can guarantee that a key employee won't leave in the middle of an important project, but it can also prevent you from firing or laying off that employee unless there has been some kind of misconduct.
An employment agreement may also contain other terms, such as the amount of the employee's compensation, the employee's entitlement to bonuses and stock options, and a requirement that employee disputes be resolved through arbitration.
A Confidentiality Agreement
If your employees will have access to sensitive company information, you should consider having them sign a confidentiality agreement. Sensitive information might include sales data, customer or client lists, marketing plans, information about products or projects that are in development, or confidential information about your company's customers or clients.
A confidentiality agreement explains what type of information is considered confidential and prohibits your employees from disclosing confidential information while they are employed at your company and after they leave the company. They may be required to return any confidential documents to the company upon their departure.
If your business receives confidential information from publicly–traded companies, you may want to consider including provisions designed to put employees on notice of potential insider trading liability and prevent them from buying and selling those companies' stock or encouraging others to do so based upon confidential information.
A confidentiality agreement can help prevent a former employee who goes to work for a competitor from divulging information that would benefit the competitor and harm your business.
A Non–Compete Agreement
Small business owners are frequently concerned that an employee will leave the company and use what they have learned to work for a competitor or set up a competing business. A non–compete agreement can prevent a former employee from working for a competitor, establishing a competing business or luring your other employees away to work for a competitor.
However, a non–compete agreement shouldn't be so broad that it prevents a former employee from getting a new job. To be enforceable in court, the agreement should only prevent the employee from working for a direct competitor for a limited amount of time and/or in a specific geographic area.
An Independent Contractor Agreement
If your business hires independent contractors, you can minimize misunderstandings by having a standard independent contractor agreement.
This agreement confirms that the person performing work for you is an independent contractor and not an employee and is therefore not entitled to income tax withholding or company benefits such as vacation and sick pay, health insurance and participation in a retirement plan. An independent contractor agreement should also specify the amount the person is being paid and the work they are expected to perform.