You have probably heard many times, a company is only as good as its employees. In Iowa, we are in what is known as an at-will employment state. At-will employment means that if there is no formal agreement in place, generally either the employer or employee can end that relationship at any time for any reason that isn’t illegal such as firing based on discrimination or retaliation.
However, at the outset of hiring, employers and employees can also enter a written employment contract to help define the scope and terms of the new relationship to go beyond the protections of at-will employment. This article briefly highlights the advantages having an employment contract and key terms to consider when entering an agreement with your employees.
What should be Included in an Employment Contract?
First and foremost, an employment contract needs to clearly describe the relationship between the employer and the employee. What is the employee going to do for your business? And what are you going to do for the employee? This can be as simple as what will be the job and duties of the employee and what is the salary or hourly wage the employer is going to pay them.
Think about your business and consider the following common items that may be included in an employment contract:
- Is there a definite term of employment? (one year, two years, indefinitely)
- What are the employee’s responsibilities?
- Will the employee receive any benefits such as health insurance, disability, or vacation time?
- What would the grounds be for terminating an employee?
- Are there reasons for including a non-compete clause?
- Do you have any confidential information or trade secrets that need protection?
- How will disputes between the employer and employee be resolved?
Why Enter an Employment Contract?
The advantage of entering employment contracts with your employees is the agreement can clearly define what is expected of both parties at the outset of the relationship. The contract can often be used to attract highly skilled candidates to come work for your business instead of your competitors.
You may also have an easier time terminating an employee who does not live up to your expectations if the contract specifies standards for employee performance. And as shown above, the contract can be a valuable tool if the employee will be learning confidential information about the business.
While there are several reasons to enter employment agreements with your employees, there are also consequences to consider when doing so. Once entered, a binding contract exists between you and your employees. This means if you look to change or end the agreement early there is no guarantee the employee will agree to those changes.
For example, if in your employment contract you agree to provide your employee certain health benefits or a certain number of vacations days, and then a year later decide to cut back as a way to save money, you will likely be limited with respect to those employees under contract. In this situation, you may end up needing to start fresh with new negotiations.
You may not need to enter an employment contract with every employee you hire, but if your business has an employment relationship meeting the needs shown above, we recommend that you consult with your attorney to ensure your agreement fits your business’s needs.