Posted on February 27th, 2017
Introduction
Strong employment contracts can be your biggest ally for protecting your business against labor claims.
And if you a regular reader of my blog you already know why us employers need as much help as we can get!
However you want to proceed with caution here. Generic contracts can potentially do more harm than good!
Contracts with employees should be tailored specifically to the employee or at least tailored specifically to your business.
A well crafted contract can make the difference between safeguarding your business and crippling it altogether.
Contracts that Balance
What is an Employment Contract?
Employment contracts are defined as:
“an agreement entered into between an employer and an employee at the time the employee is hired that outlines the exact nature of their business relationship, specifically what compensation the employee will receive in exchange for work performed”
Let’s break this down.
This is the standard definition, and frankly it’s a bit outdated in the context of today’s society.
California labor laws consistently progress in favor of employees, which continue to place tighter restrictions on us the employers. As laws change, your employment contracts must evolve to ensure the best possible protection for your business.
These contracts can include information on specific responsibilities, grounds for termination, benefits, protection of company and trade secrets and more.
Here’s some of what a balanced contract should include:
Unwavering Clarity
–Be as specific, direct, and clear as possible.
-Leave no room for confusion or misinterpretation.
Job function
-Provide a detailed description outlining the precise job duties, the function of the position, and employer expectations.
Outline Compensation & Benefits
-Be explicit about compensation features; base salary or hourly pay, overtime sick days, time off, vacation, benefits, etc.
Confidentiality
–Have confidentiality provisions that prohibit sharing of business details, plans, formulas, data, etc
-Highlight the consequences of breaching confidentiality agreements.
Policies and Procedures
-Make sure employment guidelines are universally understood and abided by.
-Policies may include code of conduct, meal breaks, health and safety, sexual harassment, and discipline procedures.
-Underscore the aim of the provision and how it’s applicable to employee.
Note:
Policies & Procedures are not just a list of information handed out to the employee, i.e. “Here’s the rule on lunch breaks”.
It should be a contract, signed by the employee, agreeing to that rule.
Meaning, IF they later claim they did not take their lunch break, you can present their signed contract to reinforce what was agreed on.
This is a strategy that we have come up with ourselves and believe me it works!
If you are ever in the unfortunate position of fighting back against an employee claim this is the type of material you want on your side.
Why Not an Employee Handbook?
California Labor Law now changes so quickly that California Employee Handbooks can actually be a huge liability for your company.
Employee side attorneys will actually ‘go fishing’ in company handbooks to catch unsuspecting employers with outdated or incorrect information.
It is just not practical or cost effective to update your handbook every time the law changes. We recommend a policies and procedures package that separates each legal policy.
Each policy is a separate document that the employee signs.
If a law changes you simply remove that ONE policy, update it, have employees resign the updated procedure and return it to the package.
We feel like most people, even attorneys, do not understand this. They are still giving the impression that an Employee handbook is the answer to all employer problems with employees.
This such an important topic that I plan on having a full post on just this subject in the near future.
Let’s Talk Arbitration.
An Arbitration Agreement is a crucial element for employers to secure their business and solve contention with employees.
I’ve spoken about this quite frequently in the past, and with good reason.
Arbitration is the primary method you should use to settle disputes with your current or ex employees if they involve an attorney.
Just to refresh, here are some of the benefits of having a rock solid arbitration agreement:
- Settle disputes outside of the cumbersome and long court process.
- Avoid crazy jury awards.
- Case heard in an expedited manner by an experienced arbitrator.
- Reduces potential cost of litigation.
- Avoid paying attorney fees to the other side.
As previously discussed, the employee’s attorney takes their cases on contingency.
Not only does this give an incentive to the employee to play the risk free game of “how much money can I get my employer to pay me” but the law required that you the employer pay all of the attorney fees on the other side if they win anything.
A $5k cause of action could end up being a $150k problem for your business if you have to pay a year or more of attorney fees to the employee’s attorney.
Adding a valid arbitration agreement will require the employee to arbitrate a dispute and save you from paying exorbitant attorney fees for the person who’s suing YOU.
Take the incentive away from these greedy employee side attorneys who will not be anxious to take a case without getting their attorney fees.
Once they see the employee has signed a solid arbitration agreement they will avoid them like the plague!
ADR & Arbitration: Controversial or Complimentary?
In recent years there has been a push to eliminate Alternative Dispute Resolutions (ADR) in employment contracts.
Like this recent ruling against Cisco where the judge did not allow the case to go into arbitration, though the employee clearly signed documents that made that a condition of employment.
Many employees (and of course employee attorneys) feel it shouldn’t be a mandatory condition of employment.
Of course they are going to argue this because it is one of the last lines of defense for employers and they are eager to weaken our position even further.
The truth is while some argue that they are “signing away their right to sue”, in actuality it can be mutually beneficial avenue for employers AND employees.
Arbitrators typically have a background in business and are better equipped to deal with these work specific conflicts. Not only is it better to have an expert with insider knowledge, but their expertise allows for a more expedient resolution than the litigation process would provide.
In addition, the parties involved have complete control over the process. A feature virtually absent once the problem goes to court.
Ultimately, as an employer, if you want to solve disputes timely, cost-effectively, confidentially AND reach a practical solution valid arbitration agreements are a must even if you do not elect to enter into other contracts with your employees.
You’re fired!
Termination Agreements are an invaluable business tool for more reasons than one.
As discussed in previous articles, when it comes to legal action in “The Golden State” of California, it’s a widely known fact that employees hold most (all) the cards.
Given this power disparity and the emphasis on employee rights over employer rights, it’s understandable that firing “at will” employees can be a little scary.
Considering you’ll be bearing all the cost should “problems” arise, you and your business can become a vulnerable target to a disgruntled employee who feels they were wrongly fired.
The Solution? Termination Agreements.
They are the best and most effective way to avoid the above situation.
Not only does it assist in protecting you against unwarranted lawsuits, but it comprises some of the most important features of employment contracts.
- Preservation of “at-will” Employment: Maintains that employees may be terminated at any time for any reason or no reason.
- Strong Terms & Conditions of Employment and Termination: Concise and clear operating procedure when it comes to firing, fireable offenses, and “at will” employment rights
- Confidentiality Agreements: Former (and current) employees are absolutely forbidden to share intellectual property & company secrets.
- Non-Competition Agreements: Denies terminated employees from starting or entering into a profession that acts in direct competition with your company.
Conclusion
You need to remember that if an issue rises up with employees almost the entire burden of proof is on you the employer.
Doing nothing wrong is not enough. Being able to provide proof you did nothing wrong is more important.
For evidence you need documentation and signed contracts with your employees is just about the best you can get.
Make sure you have a full package of custom policies and procedures created for your business. And make sure your employees all sign each of these procedures like a contract.
You can contact me anytime for a free consultation and I can offer you different packages that should fit any business and their budget.