Employment Contracts: A Range of Possible Options
While most states are at-will employment states, employers commonly enter a range of individual employment contracts that can either alter or preserve the at-will relationship. Typical reasons for such contracts in an “at-will” legal environment include recruiting the best candidate, protecting employer rights, or securing releases in exchange for severance.
Employment lawyers commonly see the following range of individual employment agreements:
- The Comprehensive “Just Cause” Agreement: These are sophisticated binding contracts often limited to the most senior management. They have provisions for “just case” termination, severance, protection of company information, post-employment restraints, and, as applicable, stock options, change of control, and the like. If such a contract is breached by the employer (for example, terminated without “just cause”), the employee usually can seek the remaining compensation due under the contract. Drafting such important agreements takes an investment of time and effort and truly needs careful legal counsel and review. The adage “a small mistake in the beginning can be a big mistake in the end” is rarely more applicable than in these type of contracts.
- The “Term” Contract: These contracts can be as sophisticated as the comprehensive “just cause” contracts, but they include a term provision ending the contract at a certain date with renewal or non-renewal at the discretion of the parties. This provides the employer with the opportunity to end the employment relationship at non-renewal time without the risk of breach. Term contracts are often first or “trial” contracts and can interest employees who believe that they will be able to negotiate better terms once they have proven themselves. Legal review for consistency in term contracts is very important if the non-renewal option is to work.
- The “At-Will” Agreement: These individual contracts contain many terms and conditions of employment (e.g., salary, bonus, confidential information, post-employment constraints), but there is no just cause provision by which the employee can only be terminated for specific reasons following specific procedures. The objective of these “at-will” agreements is to commit the employer and employee to certain aspects of employment, but to keep employment itself at-will – usually with only a modest notice provision, if any. Preserving “at-will” status in a contract prohibits the terminated employee from seeking damages for breach of a contract. Because these contracts are so limited, they can be tricky to draft.
- Post-Employment Contract Constraints: Many employers, especially those with sales forces, have contracts that are explicitly limited to securing non-compete and non-solicitation obligations as a condition precedent to employment. The contents of the contract, legal “consideration”, professional drafting, and timing of these agreements will be of critical importance if they are to be enforceable. Contracts with post-employment constraints may either preserve or alter at-will status.
Takeaway: Think about the range of possible individual employment agreements (there are more types than just listed above) when determining whether you want to enter an individual employment contract. What are your objectives? What does the candidate really require in order to be successfully recruited? Are you setting precedent in the organization? And stay away from the “off the shelf” contracts – each needs to be drafted with care and professional precision.