We’ve talked about the need to involve legal counsel in drafting executive contracts, but what about employment contracts for other employees? Contracts are the exception rather than the rule for most employees. At-will agreements, which allow employees to quit at any time and employers to fire at any time, as long as the reasons for doing so are legal, are much more common. However, there are situations in which employment contracts are useful to employers for specifying the terms of a position.
Those businesses which handle highly sensitive information may choose to make employment contracts standard in order to prevent former employees from sharing information or using it against the company. Contracts also help companies control employee productivity during employment. If the contract specifies performance standards that the employee must meet, the employer can cite those standards as grounds for dismissal if he or she needs to fire the employee at a later date due to poor performance. However, the advantages aren’t all tied to termination; contracts may also entice highly skilled workers with the promise of job security, benefits, and clear expectations for the position.
While there are a number of benefits to contracts, there are also disadvantages. Employers sometimes decide that they want to change the contract after it has already been signed. This is not easily done. Changing the terms at a later date will require fresh employment negotiations to which the employee may not be amenable—particularly if the new terms involve a shorter contract length or fewer benefits.
For some employers, another disadvantage of contracts can be the obligation to abide by the covenant of good faith and fair dealing, which can penalize employers if they violate the contract or fail to act in good faith towards the employee.
If you’re an employer who is interested in using contracts, be sure to speak with a lawyer to ensure that the contract is drawn up correctly and that negotiations, if necessary, are handled legally and efficiently. While contracts may serve you well in the long run, they can also create legal and logistical headaches if not properly drafted and abided by.