The employment relationship should be memorialized in a document signed by the employer and employee setting forth the terms and conditions of the relationship. Not only will this document be an important part of defending any future litigation, it may well prevent such problems by clarifying the expectations of both parties. An employer may include any number of provisions in this agreement, but some of the more important terms include the following:
The employment agreement should include the title of the job for which the employee is being hired and a general statement of his or her primary duties. Duties and responsibilities should be described in terms that permit the company to expand or modify the position as necessary.
The employment agreement should set forth the employee's base salary and describe the amount and any requirements of any bonus or commission. Criteria, milestones, and formulae related to compensation should be set forth in quantifiable, objective terms.
The employment agreement should list any benefits to which the employee may be entitled. However, the agreement should refer the employee to separate formal benefit plan documents for the terms and conditions and other details of such benefits. To protect against the uncertain expenses and options associated with employee benefits, the agreement should also include a disclaimer reserving the right to modify any and all compensation and benefit plans at the employer's sole discretion.
Businesses that offer employees grants of stock options should include information regarding such grants in the employment agreement. It is critical to be clear that the offer is for a stock option, rather than an actual grant of stock. This section of the agreement should clearly set forth such vital information as vesting schedules and provisions for forfeiture of unvested options upon termination.
Duration of Employment
Employers are encouraged, wherever possible, to enter into at-will employment relationships, and to make the intent and implications of doing so explicit. A guarantee of employment for a specified duration should be undertaken only when necessary, and then under the guidance of an experienced employment attorney.
In recent years, employers are asking employees to agree that any disputes between the employee and employer will be taken to arbitration, binding or non-binding. In other words, the employee is asked to agree not to sue the company, but to submit any disputes to a less costly and less formal forum. Mandatory arbitration clauses, however, are currently under attack, and are being rejected by an increasing number of courts. Accordingly, an employer should not rely on any such provisions at this time.
The protective intent of the employment agreement is defeated if the employer fails to include an "integration clause" stating that the document in question represents the entire agreement regarding the employment relationship and that the terms and conditions contained therein cannot be modified except, for example, by a written agreement signed by the company president.
Right to Work
The employment agreement should require the employee to comply with federal immigration laws by providing verification that he or she is a citizen, permanent resident, or holder of a work visa entitling him or her to work in the United States.
Works for Hire
Another important topic for inclusion in an employment agreement is the subject of copyright ownership of products such as compositions, articles, illustrations, catalog layouts, art, compositions, advertising materials and the like produced by an employee during the employment relationship. A "work for hire" is a "writing" (as defined under copyright law) arising from an employment relationship that is within the scope of that relationship. Under the federal Copyright Act, the employer is the presumed "author"/"owner" of any "work for hire" absent an agreement to the contrary. Among the criteria considered when determining whether a work was created within the scope of employment are:
- Which party initiated the work's creation;
- Who directed and supervised the work's creation;
- Where the work was created;
- Who bore the expense of the work's creation;
- What type and amount of compensation the employee received for the work; and
- The amount of time spent on the work.
Due to the great potential for ownership disputes in this area, it is wise to enter into an agreement specifying the relationship between the parties and their intent with respect to any such creations, preferably the assignment of ownership rights to the employer.
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