Pros and Cons of Using Employment Contracts
Employment contracts give employers a great deal control. One of the biggest benefits is they can help you retain your best employees by locking them in to a specific term. Conversely, if the employee turns out not to be a good fit, having a contract in place can make it easier for you to terminate him or her for good cause. If the position will entail the employee being privy to certain confidential information or trade secrets, a contract can prevent the employee from sharing that information.
On the other hand, having an agreement in place puts obligations on the employer as well as the employee. A contract does lock you in its provisions, and should you decide later on it doesn’t suit the company’s needs, it may be difficult to terminate the agreement or change its terms. In addition, once you enter into a contract, you will need to deal with the employee using good faith and acting in a fair manner. Should you treat the employment unfairly, you may be in breach of the contract and subject to legal action.
Common Terms Included in Employment Contracts
In addition to setting forth general company policies, employment contracts often include other specific terms negotiated between the employer and employee. These can include salaries and bonuses; benefits like health insurance, sick time, vacation time and other paid time off; and limitations on the employee should the employment relationship be terminated. Such limitations can dictate if and when the employee can seek employment with a direct competitor, and how and if the employee can use any confidential company information. Depending on the state, however, it can be hard for non-compete terms to hold up in a court of law should a dispute arise.
Understanding At-Will Employment
In almost every state, employees who are not under contract are considered at-will employees. This means that employment can be terminated at any time by either party, for any reason and without advance notice. In the event that the contract you offer a potential employee does not contain terms outlining the circumstances under which the employer-employee relationship may be terminated, that employee will also be considered an at-will employment. It is very important for employers to note that in addition to an individual employment agreement with explicitly stated terms, many states also recognize the concept of an implied contract. Statements or guaranties made verbally or company policies set forth in an employee handbook may be considered contracts under the law. Any violation of such a promise or policy may result in legal action against you as an employer.
Depending on the nature of the position, employers may find it beneficial to run a background check on a prospective employee to ascertain certain information about his or her history before offering a position or signing a contract. Employers can check the employee’s driving records, contact references and verify personal information like his or her Social Security number. Some states allow an employer to run a credit report on a prospective employee for any reason, and some only if it is somehow relevant to the position. Employers can also require that the employee pass a drug screening as a condition of employment.
While there is a wealth of information available for employers to screen, there are some records employers are prohibited from accessing. These include military records and medical records. Other records, such as educational transcripts and criminal records in some states, may be accessed, but only with the employee’s consent.
Legal Considerations for Employers
Whether or not you plan on making someone an offer of employment, it is crucial to know that even job applicants have certain rights under the law. Employers are prohibited from discrimination during the hiring process, and cannot deny an applicant employment based on his or her race, sex, age, gender, disability, religion or pregnancy. Individual states may afford workers additional protections on top of the federal ones. Therefore, when interviewing prospective employees, employers should refrain from asking questions that could be construed as relating to a protected status.
While there is a certain degree of risk involved in entering into a contract with an employee, doing so can be beneficial to many employers and may help protect their business interests.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.