Should You Have Your Employees Sign an Employment Contract?

It's Usually a Good Idea

So the question of the day is, do you need an employment contract for your staff members? I say the answer is yes. It only makes sense. When you hire people, there are typically several forms and contracts you need to fill out, including of course your W-2s. Let me suggest that a well-crafted employment agreement should be near the top of the list, but only if you draft it right.

Here’s why: Almost all employees are considered “at will” — this means they can be fired at any time for any legal reason (i.e., you cannot fire someone because of the race, religion, etc., but almost all non-discriminatory reasons are OK.) A poorly drafted employment contract has the ability however to change someone from an at-will employee to a “cause” employee, meaning you must have a valid cause to fire him or her.

Therefore it is critical that the contract state clearly and boldly words to the effect that "nothing in this agreement is intended to guarantee employment or alter the fact that [name of the employee] is an at-will employee." Once you do that, the document can certainly help clarify your relationship with the employee, while also being an important defense in any future litigation; it is hard for an employee to sue you for wrongful termination when he signed his name to a contract stating he knows he was at-will.

The agreement could also cover:

Compensation: This section details the employee's base salary, and benchmarks for bonuses or commissions.

Job Description: Here, you explain in detail what is expected of the employee, his hours, duties, sales quotas, everything. Be expansive and explain that other responsibilities may be added later on.

Benefits: Your benefits package should be explained. You should reserve the right to change the benefit plan.

Stock Options. If you offer stock options as part of your benefits or incentive program, the process by which they are attained and exercised needs to be explained.

Arbitration: Litigation is expensive, and many employers have mandatory arbitration clauses in their employment agreements.

Immigration Status: The employee needs to verify that he or she is a citizen of the U.S., or has the proper work visa.

Both you and your employee need to sign the contract, and you should keep a signed copy in a safe and secure place.

You should also consider having an employee handbook that explains important policies and procedures, such as workplace safety, anti-discrimination policies, anti-sexual harassment policies, how complaints are handled, discipline, sick leave, and vacation policies. This handbook should also reiterate that employees are considered at-will. Have the employee sign a document stating that he received a copy of the handbook.

All in all, I think it is almost always best to put agreements in writing.

Steve Strauss
<div> Steve Strauss is one of the world’s leading entrepreneurship and small business experts. He is a lawyer, public speaker and author, speaking around the world about entrepreneurship. He has been seen on CNN, CNBC, The O’Reilly Factor, and his column, Ask an Expert, appears weekly on</div> <div> <a href="" target="_blank"> </a>|<a href="" target="_blank"></a> | <a href="" target="_blank">@stevestrauss</a> | <a href="/author/steve strauss/all-posts" target="_blank">More from Steve</a>     </div>


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