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The Bottom Line on Employment Agreements

As a business owner, you may be up in the air about whether employment agreements are necessary. After all, you remember hearing that Texas is an “at-will” state when it comes to terminating workers who don’t meet your standards. But, what does that really mean?

While it’s true that at-will employees can be fired easier, that should not be your only concern. And, although the law is more in your favor, there are still some rules to follow when it comes to ending someone’s employment. For example, two exceptions include workers covered by employment contracts or those who belong to unions.

There is a question of balance. In the first place, it might seem attractive that business owners can seemingly terminate at-will employees without any real cause. You could like the concept of some flexibility and have concerns about setting terms into an employment contract. However, you need to know what you’re missing out on if you don’t have your employees sign off on some critical considerations.

Why Businesses Need Employment Agreements

When you set up a business plan, prospective employees should be one of your first concerns. Does your business model include independent contractors? You will also want to ensure you have rules of engagement for them or even retainer agreements. Meanwhile, you should also have a clear understanding with both your hourly and salaried employees. Otherwise, you can come across unnecessary problems.

Why do some companies decide that employment contracts are crucial to their business? Take a look at this list:

  • Trade Secrets that Need Protection: Take a look at the article we did on trade secrets. Did you know that the search behind Google’s algorithm is top secret? For sure, you notice it’s different than other search engines. Wonder how it works? Again, you won’t find the answer…..even if it you search for it. Google is number one when it comes to refining searches and intends to stay that way.
  • Other Issues Regarding Intellectual Property: Your company may have patents or trademarks that are particular to your business. Part of the agreement you make with your workers could include a non-disclosure agreement regarding trade secrets, patents and trademarks.
  • Compensation: When employers take on employees, it’s always a good idea to commit the compensation package to paper. For example, you may offer additional money for referrals or leads. The employment agreement will lessen debates about incentive compensation.
  • Non-compete Agreements: When you meet with an experienced business attorney who drafts employment agreements, you will be asked a number of questions. One might be inquiries into your business competitors. You need to determine whether it is feasible to restrain your employees from moving to other companies who primarily do the same thing as your business. Generally, the restrictions are limited to specified time periods.
  • Non-solicitation Clauses: Many employment contracts also contain non-solicitation clauses. This prohibits former employees from going after your business. This is different than a non-compete agreement. In some cases, a non-compete agreement might apply to a specified geographic area. However, if you have sales reps who hold on to your customer names, they may decide to solicit from your base. This could work outside the terms of the non-compete if the former worker moved to a different area or industry. The non-solicitation clause would limit their ability to go after your client dollars.

These are just some examples of reasons that an employment agreement is essential. Once again, it is not only about the ability to terminate employees. Instead, it is protecting your company’s interests.

When You Need an Employment Contract

Not sure you need an employment contract in place? At Manfred Sternberg and Associates, we can assist you in making the right decisions. Contact us to see how we can help.

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