Employment agreements can take many forms, including formal written contracts or simple verbal agreements. Most small businesses start out with just “handshake” verbal contracts with their employees. But as business grows, these agreements become both outdated and legally risky. Every business should have the terms of employment specifically spelled out in a written agreement with their employees. Attorney Matt Villmer with Sodoma Law put together the following tips for small businesses to follow when drafting their own employment agreements:
1. Don’t Rely on the First Results You Find Online
While the Internet is an excellent resource for information on a wide variety of topics, it can sometimes lack the specifics and attention to detail your company needs. Finding a generic form online can spell trouble if it does not include local legal requirements, or if it has passages that run contrary to modern law in your jurisdiction.
Employees are usually among the most valuable resources for a company, so this isn’t something you should ignore. Feel free to use the Internet to get a foundation in employment contract requirements, but then take the time to meet with an attorney to make sure your document fully complies with the law and that it doesn’t create any surprises in the future.
2. Decide Between Employees and Independent Contractors
A very important distinction is one that many employers overlook: the difference between an employee and an independent contractor. Generally, aside from the intention of the parties, the law looks at the circumstances to determine how much control an employer exerts over the agent and how he or she performs the work. If you exert too much control, you may inadvertently create an employment relationship, subjecting your business to a whole suite of additional legal obligations.
Use your employment contract to clearly spell out the nature of the relationship. Decide up front whether you want to have an employee or an independent contractor relationship. Explicitly identify which it is in your contract. Create constraints on both parties that either clearly establish the employment parameters or prevent you from exerting too much control. If you want to make an independent contractor relationship, spell out that you don’t have the authority to dictate many of the terms that can lead to the legal determination of an employment relationship (such as when and how work must be performed). While not a perfect barricade to legal claims regarding independent contractors becoming employees, it can help establish a buffer and a means of heading off activities that could lead to such claims in the first place.
3. Think About All of the “What If’s”
When preparing any contract, it is important to take your time and thoroughly consider all of the possible eventualities. In any legal dispute in which an employment contract is relevant, you may well live or die by that document. So, you should make sure the contract is drafted properly before problems arise. Consider things like how discipline and termination will be handled, when performance reviews will be given, criteria for salary enhancements and promotions, the term of the employment agreement, what to do in the event of a legal dispute, etc. Again, it’s wise to consult with an experienced attorney to make sure you have all of your bases covered.
4. Be Careful What You Say
While it is important to consider every possibility, it is also wise to avoid language that’s overly inclusive. It’s common to reference other documents in an employment agreement, such as an employee handbook. However, if there is no such document, it’s outdated, or it contains provisions that have since become illegal, it could jeopardize the validity of other portions of your contract. Similarly, unnecessary redundancy, irrelevant provisions, and outdated sections can all create problems and ambiguities that may well undermine the purpose of the contract.
Instead, try to remain succinct in your language. Say only what needs to be said, and elaborate only to the extent required to get the point across clearly and without ambiguity. Define any terms you use that need to be clarified. Do not repeat the same provision several times in different ways, thinking this will strengthen its impact on the agreement; it’s more likely to create conflicting interpretations that will undermine the document.
5. Keep it Fresh
Remember, laws change constantly. What might make for a perfectly acceptable legal agreement today could be exceptionally problematic tomorrow. Bring your contracts to an attorney for review at least once a year to ensure that what you are doing remains legally valid and enforceable. Also, consider an audit of existing agreements to determine if you may need to enter into a new, more enforceable agreement. This is particularly true of agreements with personnel in key roles. As a general rule, when in doubt about your employment or independent contractor agreements, contact Attorney Matt Villmer with Sodoma Law to schedule an appointment and determine what, if any action, you should take to keep yourself in the least legally risky position possible.