13 Essential Employment Contract Provisions

Get familiar with what you should include in your next employment contract by looking over this handy guide.

There are as many types of employment agreements as there are industries. A machinist, a college professor, and a non-profit director will all have unique contracts specific to their vocation. But there are universal provisions off of which each unique contract builds. Things like scope of work, compensation, term and termination are indispensable in any employment agreement because they come into play 10 times out of 10. Other provisions like non-competition, works for hire, and confidentiality are protective measures. Still others act as incentives for valuable employees.

Below, we’ll discuss each type of essential employment contract provision that you should include when hiring.

Descriptive Provisions

Provision No. 1: Scope of employment. Each employment contract should contain a job description with particulars about the employee’s responsibilities. This provision should identify whether the employee can be demoted, transferred to a position with different responsibilities, or have their existing responsibilities modified or increased. Travel and relocation should also be discussed. 

Provision No. 2: Compensation. The compensation provision will list out base salary, signing and production bonuses, and base benefits such as pension plans and health, life, vision, and dental insurance. It will also address the circumstances where employee salary can be reduced; these may include suspension or termination of an applicable professional license or the company coming under qualifying financial distress.

Provision No. 3: Term and termination. No contract lasts forever, but ideally we’d like to keep the good employees for the long run and weed out the bad ones. If your business isn’t employing at-will (meaning it can terminate at any time for any reason or no reason at all), there are several mechanisms to achieve this. One is a term-based contract with renewal provisions; renewals can be automatic with options not to renew, or can be elective by both parties mutually.

The flip side of that coin is to consider how an employment contract might be terminated before its natural end. Typical grounds for termination include employee’s criminal conduct or breach of the employment agreement; other grounds for termination can be added based on acts that are detrimental to the business, such as revocation of a practice license. Keep in mind that if you’re granting company equity to an employee, you may want to include a claw back provision in the case of termination for cause.

Provision No. 4: Probationary period. Some employment starts with a feeling-out process, a trial run to see if the applicant fits your business before offering him or her the benefits of a long-term contract. If you hire your employees on this basis, be sure to address all the conditions and guidelines of the probation period. These include the duration of the probation, training guidelines, and assessment standards. In all cases, notify the applicant of the results at the end of the probationary period to avoid an implication that they have (or have not) been retained long-term.

Protective Provisions

Many of these provisions center around retaining and maintaining the value that employees bring to the business. When a company invests in an employee, protective provisions ensure that the company remains in control of that investment.

Provision No. 5: Non-competition. Very common in employment contracts, “non-competes” prevent an employee from taking a position with the employer’s competitor, investing in a competitor, or establishing a competing business during employment and for a certain time afterward. The non-compete must be reasonable in time and geographical scope to be binding; a conservative non-compete might be for two years after employment and prohibit competition in a five-mile radius of the employer’s place(s) of business. If your non-compete is aggressive, you may want to include a blue-pencil clause in your contract.

Provision No. 6: Non-solicitation. The non-solicitation provision is an extension of the non-compete. It prevents an employee from soliciting, discussing, or accepting employment for competing business from another agent or employee of the employer.

Provision No. 7: Work for hire. This provision states that an employee who creates products, methods, or any other work that is ripe for intellectual property protection as part of employment automatically assigns ownership to the employer. In this way, the employer owns the creation and the underlying intellectual property at the outset.

Provision No. 8: Assignment. An assignment agreement is a catch-all that supplements the work for hire provision. It states that the employee also agrees to assign any creations made by the employee that fall outside the scope of the work for hire provision. This is an especially important provision if a personal creation was made using company equipment, funds, or on company time.

Provision No. 9: Best efforts. A best efforts provision reaffirms the employee’s dedication to benefiting the employer and devoting his or her full attention to business during work hours.

Provision No. 10: Confidentiality. Oftentimes an employee will need to be briefed on confidential or sensitive information in order to perform his or her work. Under a confidentiality agreement, the employee promises never to disclose this information to an outsider and to take reasonable steps to prevent inadvertent disclosure. This type of provision usually lasts well beyond the employment itself, in perpetuity unless and until the information itself ceases to become secret.

Provision No. 11: Alternative dispute resolution. If a conflict arises over the employment agreement, employers will often require mediation before either party can sue. This encourages a candid out-of-court discussion and can save significantly on time and legal expenses. If mediation doesn’t solve the issue, some contracts call for the dispute to be handled by binding arbitration rather than litigation for a more expedient, cost-efficient resolution. 

Incentive Provisions

Provision No. 12: Employee benefits. Benefits make for a more attractive job offer, and can often sway a potential employee where salary alone cannot. In addition to insurance and pension, companies sometimes offer stock options – or outright equity – to high-level employees. The equity may be granted according to a vesting schedule as part of a “golden handcuff,” or as an option with a fixed price. Most incentive packages have a one-year cliff before the employee can begin to realize any equitable benefit. If you’re offering equity, consider including a tax distribution to cover the employee’s additional taxes as a result of receiving the benefits.

Provision No. 13: Employee Liability Protection. Extending a limited liability company’s protection to an employee takes the pressure off when they have to make important decisions with a company-wide effect. Being free to make tough decisions without risking their personal well-being is essential to productive employment for a manager or director. Employee limited liability has two components: director’s and officer’s insurance (D&O insurance) and bylaws that provide for agent indemnification.

Mark Turner is an attorney at The Gertsburg Law Firm. Get more legal tips for your business on The Gertsburg Law Firm blog, with new articles every week.

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  • Next up: 13 Takeaways from GCP’s Panel Discussion on Retaining Millennial Workers
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  • 13 Takeaways from GCP’s Panel Discussion on Retaining Millennial Workers

    Hiring millennials seems to be a top-of-mind topic for employers. This young group of workers can bring new talent, fresh perspective and renewed commitment to your business. But what is the trick to keeping them long enough to make a powerful impact on your company?

    To highlight some of the ways companies are tackling this issue, GCP pulled together the following experts for a panel discussion in December: Marzell Brown from Rockwell Automation, Jeff Heinen from Heinen’s and Ashley Rivera from Union Home Mortgage.

    Here are 13 tactics to retaining millennials from the discussion that you can implement in your company:

    Provide millennials with feedback and information

    Takeaway No. 1: Create resource groups that provide feedback on different topics important to millennials and the company as a whole.

    Takeaway No. 2: Establish a rewards system that changes frequently so managers are forced to recognize and acknowledge workers regularly.

    Takeaway No. 3: Develop a program where millennials have exposure to people higher up in the company for feedback and guidance, such as regular lunch and learns or even more direct mentoring opportunities.

    Takeaway No. 4: Make sure your company is transparent and important information reaches all levels. Hold regular senior management meetings, where those leaders then take that information back and share it with their departments.

    Takeaway No. 5: Consider an open floor plan for increased communication and collaboration.

    Show millennials they are valued, respected and trusted

    Takeaway No. 6: Survey your staff often so they have a voice in things happening within the company. Leverage their opinions and knowledge.

    Takeaway No. 7: Put someone in charge of retention—a staff person to go to with concerns and issues and someone who is checking in to make sure employees are content.

    Takeaway No. 8: Get to know your employees. What is important to them? What will keep them satisfied with their job and the company—increased responsibilities, flex time, travel?

    Stand out in a crowd of employers

    Takeaway No. 9: Give back. Research shows that millennials want to not only do well, but do good. Make giving back to the community part of your company mission. Offer a company match program or organize volunteer days.

    Takeaway No. 10: Be socially responsible. Work sustainability into your company values wherever you can.

    Takeaway No. 11: Offer regular trainings and other opportunities for employees to build on their skills. Don’t just focus on their current job, but on their next job as well.

    Takeaway No. 12: Improve benefit packages. Competitive salaries are important to millennials (and everyone!), but so are other benefits like more vacation time.

    Takeaway No. 13: Create an effective internship program. Form partnerships with high schools and colleges. A good relationship with their career services staff will ensure you get the best-of-the-best, and ideally the internship program will feed into regular staffing.

    Interested in doing more to build your leadership skills and a stronger team? Join us for an event February 7 on an interpersonal approach to workforce development.
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  • Next up: 19 Things You Need to Know About Finding and Keeping Talented Workers
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  • 19 Things You Need to Know About Finding and Keeping Talented Workers

    Finding and hiring talented staff is an eternal issue for small business owners. To help alleviate that challenge, members of COSE’s Strategic Planning Course gathered recently for a roundtable discussion on some of the things entrepreneurs should keep in mind as they dip into the talent pool and also try to retain the staff they already have. Following are 19 takeaways from that discussion. 

    Finding and hiring talented staff is an eternal issue for small business owners. To help alleviate that challenge, members of COSE’s Strategic Planning Course gathered recently for a roundtable discussion on some of the things entrepreneurs should keep in mind as they dip into the talent pool and also try to retain the staff they already have. Following are 19 takeaways from that discussion.

    1. Identify the type of candidate you want.

    2. Prior to beginning your hiring search, ask such qualifying questions as: What kind of culture am I trying to build? And does this person need to be an Internet whiz?

    3. Are there people already working in your organization who might be able to refer a potential candidate?

    4. Job boards such as Indeed and Career Board can be great resources.

    5. Think back to what you did the last time you had to hire. What worked? What didn’t?

    6. How do you acquire customers? Consider utilizing that same strategy to finding good employees. Just like potential customers might be doing business with someone else, your next potential hire might be working for someone else right now. Put yourself out there and go after that person, even if they’re employed.

    7. Know what you want and know what you’re willing to give up to get what you want.

    8. Related to No. 7, prioritize what you want and what’s most important to you and this job you’re trying to fill.

    9. Don’t wait until you have a need to begin thinking about all this stuff. You should always be recruiting ahead of a need. Keep the relationships going with the people you interact with. You never know when you might be calling on them again.

    10. Looking to entice millennials to your workplace? Think about what they want out of a job, such as telecommuting opportunities and a fun workplace culture.

    11. Something to keep in mind if you have millennials already working in your office: Often times, this group of people feel the best way to get a bigger jump in pay is by going to a new employer.

    12. One more thing about millennials: There is no fear factor with this group. They feel they can find a job quickly if need be.

    13. Excessive turnover in your business can cause current employees to leave as well. For example, if you have trainers on your staff who are constantly training new hires, they can get burned out and then they could leave, too.

    14. When you move into hiring mode, look closely at the resume of the candidate. Are there a lot of “two-year-and-out” jobs listed? That might be a red flag.

    15. Turnover is not necessarily a bad thing. Some churn can be good because it can infuse your business with new ideas and a fresh perspective.

    16. Word of mouth works. People know people, who know people, who know people, who knows someone who would be a fantastic fit for the job you have available.

    17. Leverage LinkedIn. Find employees who have profiles similar to the people already working at your business. Again, even though these people might already be employed elsewhere or even if you don’t have a job opening at the current time. It will at least build the pool of people you have to go from when you do have something to offer.

    18. Remember to tell your employees thank you. Be genuine. If someone gets a project done on time, or if they do a good job handling a customer, recognize them. And give them a specific reason why you’re thanking them.

    19. Keep work/life balance in mind. For some employees, that can be more important than a raise.

     

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  • Next up: 2019 Cleveland Internship Summit Preview: How to Expand from Inclusion to True Diversity
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  • 2019 Cleveland Internship Summit Preview: How to Expand from Inclusion to True Diversity

    In the lead up to the 2019 Cleveland Internship Summit on Feb. 21, we are previewing some of the sessions taking place at this year's event. Today's article focuses on how to create a truly diverse internship program.

    The new generation of potential job candidates who are emerging on the scene are looking for organizations that stand for more than only making a profit, says Camila Negret, Midwest Diversity & Inclusion Leader in PwC’s Cleveland office. Rather, they want to work for organizations with a higher sense of purpose, which includes organizations that embrace the value of diversity & inclusion.

    With that in mind, it’s important that companies create a sense of belonging for all of their staff, which extends to the company’s internship program, said Negret, who will go into more detail on this subject during a session at the 2019 Cleveland Internship Summit, taking place Feb. 21 at Corporate College East from 7:30 a.m. to 1:30 p.m.

    In the days leading up to the Summit, we sat down with Negret to talk more about diversity within organizations, why it’s important, and what takeaways attendees will walk away from her session with. Here’s what she had to say:

    Diversity vs. inclusion

    While they might sound similar, Negret said there is a difference between diversity and true inclusion within an organization. “Diversity is a state of being”,” she explained. “Inclusion requires action and engagement.”

    Further, she said diversity is an acknowledgement of who do we want at the table and who is currently represented. Inclusion, on the other hand, moves closer to the creation of a sense of belonging for all people and giving everyone on your staff the permission and confidence to be themselves.

    Inclusion benefits

    As mentioned above, one of the most obvious benefits of an inclusive work environment is it can help companies attract qualified talent who will help the business succeed.

    Beyond that, Negret said, another impact of an inclusive culture is that when it creates an environment that is safe and comfortable for all, that kind of environment is conducive to business benefits such as innovation, creativity, best practices and accelerated learning and development for employees.

    Session takeaways

    Negret said her goal for the session is to make it a practical conversation and arm attendees with no-cost resources that they can take back to their own organization.

    For example, one such resource Negret plans to mention is the CEO Action for Diversity & Inclusion, an organization of business leaders seeking to advance diversity within the workplace. She will also touch on the “I Act On” pledge and why that pledge should matter to your business. 

    Learn more about this topic, as well as other ways to build and improve the internship program at your company, at the 2019 Cleveland Internship Summit on Feb. 21. Click here to learn more and register.

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  • Next up: 3 Key Differentiators of COSE’s New Health Benefit Option That You Need to Know
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  • 3 Key Differentiators of COSE’s New Health Benefit Option That You Need to Know

    The COSE Health and Wellness Trust is a unique benefit option for small business owners. Learn about some of the features of the plan that helps sets The Trust apart from others on the market.

    You’ve already learned how COSE’s new benefit option—The COSE Health and Wellness Trust—has a number of benefits available to COSE members who participate. We’ve also provided you with a general overview of the plan and its features. But you might have lingering questions about how the plan works.

    Here’s a more detailed look at three ways the COSE Health and Wellness Trust, a multiple employer welfare arrangement or MEWA, stands out from other benefit options.

    • The plan is self-funded. This means The Trust can offer rate stability, flexible benefit options (including both health savings accounts and health reimbursement accounts), and recognition of preferred health status.
    • Costs are kept low. Costs associated with The Trust are kept low because MEWAs are not subject to some of the Affordable Care Act’s mandated benefits and taxes. In many ways, The Trust acts as if it were more like a large company insurance plan.
    • Regulated and protected. The Trust is regulated by the Ohio Department of Insurance. These state regulators monitor the COSE MEWA to ensure appropriate surplus is available to cover unforeseen risk and protect its solvency. The COSE MEWA also maintains stop-loss insurance coverage to provide additional protection to plan participants.

    For more information on how COSE’s new benefit option stands apart, watch this video of Dan Polk of Medical Mutual, COSE’s longtime health insurance partner, explain why The Trust may be a good fit for your business.

    Learn more at CoseMEWA.com

    And for a deeper dive into how the COSE MEWA works and why it may be the right plan for you and your business, access all the information you need on our education page at www.cosemewa.com. Here  you can view videos, access frequently asked questions, view plans and additional information that will help you make an informed and easy decision for your business.

    For more information, contact the COSE Benefits Team at Medical Mutual at 440-878-5930. Or email the team at cosebenefits@medmutual.com.

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  • Next up: 3 Steps Employers Must Take When Engaging in the Interactive ADA Process
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  • 3 Steps Employers Must Take When Engaging in the Interactive ADA Process

    Here are three things to keep in mind when responding to requests for extended leave that will help your business avoid unnecessary legal proceedings and costs.

    Employment and labor relations attorneys across the country took notice when the U.S. Supreme Court recently decided not to review an appellate court decision regarding leave of absence from work. The appellate court held that a leave of absence lasting several months is not a reasonable accommodation under the Americans with Disabilities Act (ADA). A reasonable accommodation is defined as a change to an employee’s job duties that allows an employee with disabilities to perform his/her job. That decision came from the Seventh Circuit Court of Appeals, which covers Illinois, Indiana and Wisconsin.

    The plaintiff in Severson v. Heartland Woodcraft, Inc. requested that the Supreme Court decide whether a finite leave of absence of more than one month is a reasonable accommodation under the ADA. Mr. Severson had taken a 12-week leave under the Family and Medical Leave Act (FMLA) to deal with serious back pain. At the end of the 12-week FMLA period, he had back surgery and told his employer that he could not work for an additional two to three months while he recovered. The employer denied his request and later terminated his employment. Mr. Severson brought suit against his employer, alleging that they had violated the ADA by failing to grant the additional leave as a reasonable accommodation. The trial court granted the employer’s motion for summary judgment, which is a judgment entered by the court without a full trial. The Seventh Circuit affirmed that ruling, reasoning that an extended medical leave would not assist Mr. Severson in performing his job, but would actually keep him from working. 

    RELATED: Check out other articles by the legal team at Walter | Haverfield by clicking here.
     
    When the plaintiff requested that the Supreme Court hear the case and express its opinion on the issue, the court declined. Without the Supreme Court weighing in, there is contradictory authority depending on the employer’s jurisdiction. Outside the Seventh Circuit, multiple courts of appeals (including the Sixth Circuit Court of Appeals) and the Equal Employment Opportunity Commission (EEOC) have held that a finite leave of absence can be a reasonable accommodation under the ADA. Further, the EEOC has even indicated that placing a limit on the amount of leave to which an employee is entitled is a violation of the ADA.  

    Without the Supreme Court's input or consistent guidance on the issue, employers should always engage in the ADA interactive process with employees to evaluate possible reasonable accommodations, including finite leaves of absence. Here are three key recommendations for employers to follow when responding to requests for extended leave:

    Recommendation No. 1
    Consider all laws, regulations and policies that may apply to the request. The ADA, FMLA, state and local laws may operate to provide leave for the employee.  Additionally, check your handbooks and policies to see if the leave request fits into any of your company’s leave provisions. 

    Recommendation No. 2 

    Talk it through. Explore whether another accommodation, such as a revised work schedule or frequent breaks, would allow the employee to perform the essential functions of his/her position.

    Recommendation No. 3
    When in doubt, consult an attorney.  Determining whether any request, including a leave of absence, is a reasonable accommodation can be complicated, and requires consideration of many factors. 

    Following these recommendations will help employees receive required reasonable accommodations under the law. They will also help employers avoid unnecessary legal proceedings and expense.

    Rina Russo is an attorney with Walter | Haverfield’s Labor & Employment Services practice group. She can be reached at 216-928-2928 or at rrusso@walterhav.com.


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