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Apr 30, 2024

Understanding Employment Contracts: Key Elements for Business Owners

If you have an employment contract, you are in a stronger position than most workers.

Understanding Employment Contracts: Key Elements for Business Owners

If you have an employment contract, you are in a stronger position than most workers in the United States. These days, you are lucky even to have your employee issue you a W-2 form and regard you as an employee because, in this case, your employer must provide health insurance for you if you work full-time, and if your pay is on an hourly basis, then your employer must provide overtime pay when you work more than 40 hours in one week. Most people are stuck in the gig economy, working countless hours for whatever their customers and the apps that connect them to those customers are willing to pay them and not knowing whether they will have to use buy now pay later (BNPL) for next week’s groceries. Even employees who have W-2 status are much more likely than not to be working on an at-will basis, where the employer can fire them at any time. Therefore, an employment contract is something you should take seriously if your employer offers you one. If you are a business owner, you are making a good decision for your business by giving your employees the stability that an employment contract provides. For help drafting employment contracts that protect your interests and are fair to your employees, contact a Tempe business law attorney.

Which Issues Should You Address in Employment Contracts?

An employment contract should include all terms of employment that are specific to the employee who is signing the contract; provisions that apply to all of your employees should be in an employee handbook, and upon their hire, employees should sign a statement indicating that they have read the employee handbook.  These are some points that an employment contract should address:

  • The date that the employment relationship begins
  • The expiration date of the contract, whether it is renewable, and if so, how to renew it
  • The employee’s salary and the frequency of payments
  • Benefits such as health insurance, college tuition reimbursement, retirement accounts, and, if applicable, employer-provided phones, computers, cars, or housing
  • Procedures for early termination of the contract
  • Dispute resolution procedures, such as deadlines for repairing a breach of contract and which courts have jurisdiction to rule on disputes arising from the contract

Are Non-Compete Provisions in Employment Contracts Fair?

A non-compete agreement, either as a separate document or a clause in an employment contract, prohibits the employee from engaging in activities that compete with the employer during his or her term of employment or shortly afterward. Until recently, non-compete clauses were common in employment contracts. In 2021, by which time 20% of full-time employees with employment contracts but without bachelor’s degrees were subject to non-compete clauses in their contracts, the federal government imposed new restrictions on non-compete provisions. In Arizona, it is legal to include non-compete clauses in an employment contract as long as they are reasonable. The law does not specifically define what constitutes a reasonable non-compete clause, but they should not be so restrictive that they amount to “you’ll never work in this town again” clauses. In other words, they should cover a limited time period and geographic area, and they should be specific about the activities the former employee cannot do, such as poaching clients from the employer. It is unconscionable to make an employee sign an agreement promising never to work as a cardiologist in Arizona again after they completed a cardiology residency and got licensed to practice in Arizona.

Breach of Contract Disputes and Force Majeure Clauses

Employment contracts are legally binding, and if either party does not fulfill its contractual obligations, the other can file a breach of contract lawsuit. Your employment contract should outline procedures that the parties must take to repair the breach or amend the contract before resorting to a lawsuit. It is also a good idea to include a force majeure clause in the contract. These clauses state that it does not count as a breach of contract when one party’s failure to fulfill its contractual obligations is due to a force majeure event. A force majeure event is a majorly disruptive event that interferes with workflow on a society-wide level. Examples of force majeure events include wars and natural disasters. During the COVID-19 pandemic, when many employees were unable to do their jobs and employers were unable to keep them on the payroll, force majeure clauses in employment contracts prevented many lawsuits.

Sources

https://www.jdsupra.com/legalnews/are-non-compete-agreements-enforceable-13900/

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