The way in which the employer and employee deal with each other can affect their relationship and, thus, the success of the employment arrangement. Therefore, it is essential to ensure that the employment agreement accurately reflects the terms and conditions of that relationship.
Key points to structure an employment agreement
An employment agreement is a document that provides a clear understanding of the relationship between an employer and an employee. The key terms of this agreement are designed to protect both parties, including issues such as the nature of employment, compensation, confidentiality, and the termination procedure clause.
1- Nature of the Employment – what’s expected?
Nature of the Employment
The employment agreement should state the position to be held by the employee and whether that position is full-time, part-time, seasonal or occasional. The agreement should also describe whether the employee is expected to work exclusively for the employer or will be able to work for other employers.
Employment Term
The employment agreement should state when the employment commences and when it ends. If the employment is for a fixed term, e.g. one or two years, then this period should be specified. The end of an employment agreement may also be dependent on a specific event, e.g. upon completion of a project or after a probationary period has elapsed.
Place of Work
The place of work should be set out in the agreement. This can include a single place of work or multiple locations where an employee is expected to work. In addition, if an employee is required to travel, any locations to which they are expected to go must be stated in the employment contract. If an employee may be required to relocate as part of their duties, this should also be stated within the contract along with any relocation package available to them (including any costs covered by their employer).
2- Compensation – how much will they be paid?
The compensation clause of an employment agreement governs what a company must pay its employee for his services. This clause may include bonuses, benefits, vacation and sick leave, and other forms of compensation.
The following is a sample compensation clause
Compensation. Employee shall be entitled to an annual salary of $X,XXX.XX, less all mandatory deductions and withholdings The Company may make such salary payments in periodic instalments at such intervals as are consistent with its normal payroll practices.
The Company shall have the right to withhold from any payment to Employee such state, local and other taxes as are required by law to be withheld.
3- Confidentiality – what can be shared with others?
If an employee has signed an employment agreement or contract, it will usually contain a paragraph that involves confidentiality. In general, the confidentiality clause prevents the employee from discussing or sharing any information about the employer’s business.
The confidentiality clause is frequently included in the section of the employee contract dealing with intellectual property rights. It may also be included under a “non-compete” clause.
Confidentiality agreements are considered to be a type of restrictive covenant.
4- Termination Procedure clause
The termination clause is an important section of the employment agreement that dictates how, when, and why employers may terminate employment. Termination clauses include termination by the employee, employer, mutual consent or through some other means. Each party’s rights after termination must be clear to avoid confusion and disputes.
Termination by Employer
If an employer wishes to terminate an employee for poor performance or misconduct, it should establish a disciplinary process in the employment agreement and follow it strictly. This can help to protect the employer against any claims that the dismissal amounts to unfair dismissal.
Whenever possible, the employer must provide warnings before termination and allow the employee a right of reply to any allegations of misconduct or poor performance.
For more serious offences, such as theft and fraud, the employer may dismiss without warning if ample evidence points to guilt.
Termination by Employee
The employment agreement should also outline what constitutes sufficient notice for employees wishing to resign from their positions. Typically this is between one week and one month’s notice depending on the position and seniority of the employee involved. The employment agreement can also stipulate whether employees are entitled to a severance package upon termination in addition to payment for outstanding leave days.
The employment agreement can be one of the most critical documents in a company. Defining an employee’s duties, responsibilities, accountabilities, and compensation means less risk and liability for a company and more effective communication between employers and employees. If you are looking to draft an employment agreement, we are here to help.
You can read about how AIO drafts tailored agreements and contracts HERE
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