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BUSINESS: The Ultimate ResourceDecember 2005 Upgrade 39

A & C Black Publishers Ltd 2005

GOOD SMALL BUSINESS ACTIONLIST

Changing Contracts of Employment

Getting StartedIn recent years, the term contract of employment has become confused with contractemployee. For the purposes of this actionlist, the term contract of employment is an

agreement between an employer and employeewhich may or may not be tied to an existing

labor union agreement. Contract employee refers to someone self-employed or employed by athird party, who contracts with the employer.

Contracts of employment have advantages for the employer and the employee. However,

because they take extra cost and care to administer, they arent normally used for the majority ofemployees but are reserved for key positions in an organizationusually for those highly

compensated individuals who pose the greatest risk to the company should they leave.

While this actionlist assumes that your organization already has contracts of employment in

place, the points are also helpful for those just now considering such a move.

FAQs

What is the purpose of a contract of employment?Employees want some protection from being dismissed at will. Without an employment contract,

they may feel that theyre at the whim of managers who dont need legal, concrete reasons forterminating them. Not having such a contract could discourage prospective employees from

applying.

From an employers point of view, without a contract of employment, those you hire arent

necessarily bound to allegiance or secrecy, and could defect to a competitor company without

you having any legal recourse. Having a contract might also discourage less than honorablepeople from applying, knowing that your recruitment and hiring practices would probably turn

up something about their past and the baggage they bring with them.

We have used very basic contracts of employment and they havent shown the value

we anticipated. Is it worth going forward?The advantage of further refining your contracts is that you may get closer to your desired goalthe next time. Going back will only precipitate the same old issues that haunted you before.

Having something poorly defined, however, can get you into as much hot water as having

nothing at all.

If you have few in-house resources, and you havent found enough specific information through

professional contacts, personal networks, associations, or online resources, you have two options:

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develop the expertise yourselves or hire experts to help you get there. Either way its an added

expense, but compare that with losing a legal battle over unjust termination.

Our major concern is that, without some sort of agreement, employees are free toleave with knowledge we paid them to develop. Would a contract of employment

protect us better than a simple non-compete or non-disclosure agreement?The type of agreements you describe are very common, and may serve their purpose well. The

added value of a contract of employment for the employer, however, is that it allows you to

cover a lot more issues and contingencies than just the non-compete aspect of the relationship.

As you probably know, disputes between employees and their employer occur for myriadreasons; contracts of employment merely try to cover some of the most common areas of dispute

ahead of time to head off avoidable costs and consternation later.

Making it Happen

The AssessmentIf you havent yet put a contract of employment into effect, doing an organizationalassessmentneeds and wants, strengths and weaknesses, pros and consis a good place to start.

In other words, any major effort involving the whole company should be done purposefully, not

on a whim. It would be impractical and probably unfair to implement contracts of employment

only for one or two critical jobs, rather than doing it for key positions throughout the company.

If you have had contracts of employment in place and want to upgrade and modernize them, the

same sort of assessment process is also advisable.

Here are a few questions to ask yourselfperhaps in conjunction with a committee made up of

members from across the breadth of the organization:

What in your organization, or industry, has changed enough recently to warrant ourmaking this commitment, or upgrade, to contracts of employment?

What jobs, and the associated job descriptions, have changed in the past year or so? What problems have been experienced in the past year among staff, and which of these

are attributable to things that could be overcome with a more defined employee/employerrelationship?

What does the next year look like, in terms of industry and company health? What type of workforce would it be most practical and economical to employ; what type

of contracts make the most sense for that work?

Making It Work and Making It LegalIf you are able to find examples of employment contracts as a comparison, terrific; better yet ifthey apply to your type of organization or company. But whether directly applicable or not, at

least others work in this direction will help identify broad areas to consider.

Research any changes in employment law that might also impact contracts. If you are involved

with a labor union, obviously that would be a partner in both the research and drafting of new

contract language. While having a legal advisor on the team would be nice, it isnt required. An

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attorney specializing in employment law should, however, take a look at the proposed contract

before it takes effect.

The following are among the things that a contract of employment can require of the signatories.

The employee must agree to:

work solely for the employer, unless otherwise stipulated;

work honestly and safely, and do nothing that would compromise the organization orconflict with its basic interests;

respect and adhere to a confidentiality agreement. Products built and proprietaryinformation gained while employed should remain the property of the company, and not

shared with competitors. This element is referred to as non-disclosure;

in some cases, also sign a non-compete clause, which further binds the employee afterleaving the company.

The employer must:

provide work as stipulated and defined in the contract; pay employees according to the terms of their contract, including stipulated benefits andreasonable costs and expenses arising from the job; provide a work environment that is safe and free of health hazards; provide a reliable structure for ascertaining attainment of stated job goals and

measurements by which career advancement becomes available;

likewise, provide a mechanism by which work-related grievances can be heard andremedies sought.

Things to Consider as Part of a New Contract of Employment For those putting together employment contracts for the first time, here is a list of elements thatshould be included. For those rewriting contracts, the list may include things that have been

missing in the past, or that might help avoid future conflicts: name of employee and the company or organization name of the job and job description. Qualifications statement may be included dates (starting and endingif the contract is for a limited duration) condition of employment (for example, probationary period) and place(s) of work the salary or rate of pay, plus details about its calculation and when paid company benefits (health and medical, vacation, entitlements, sick leave, bonuses,

retirement, and so on)

terms and conditions of employmentplace, hours, flextime, and so on options for termination and notices required

process for filing a grievance and recourse for appealing disciplinary action collective bargaining agreements that become part of the contract confidentiality, non-disclosure, and non-compete clauses, some of which can apply for a

period of time after the employee has left the company

ownership rights to property and product (intellectual and real) developed whileemployed

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employer indemnity statement that protects the company and its employees from liabilitystemming from illegal activities conducted by employees when working elsewhere

stealing company secrets from a former employer, for example

Common Mistakes

Rushing to Implement or Review the ContractsDont be in a rush...its better to be safe than sorry. Be sure the language is clear, unambiguous,and easy to understand. Double check that nothing stated, required, or implied runs contrary to

employment laws or regulations. Make sure that employees know that signing a contract of

employment is a binding legal document and that subsequent changes require agreement by bothparties.

Finally, while there is a tendency by employers to define the terms of employment very

specifically, there is reason to take a last look at it from a different perspective. You want acontract with some direction and objectives that will challenge your employeesbut you also

want one that allows individuals room to use their creativity and initiative to contribute in waysyou didnt anticipate.

Using a Contract of Employment as a Means for Dismissal If part of your reason for developing or revising contracts of employment is because you want a

better handle on work performance, make sure measurements are built into the contract, as wellas the job description. Make certain the employee understands and agrees to those changes. Also

check that you have the necessary staff resources to track those measurements accurately, so that

they can be used when re-negotiating contracts, discussing a pay raise or, conversely, building a

case for terminating the employee.

Remember, if you are introducing a lot of new changes at once, the employee now holding thejob may see this as a thinly veiled attempt to maneuver him or her out of a job. If youre eager tohang onto the employee, make sure you communicate this properly so that you win trust and,

eventually, an agreement that the contract is in everyones best interest.

If, on the other hand, you believe the current job holder cant really measure up to the new

challenges, a new contract isnt the way to get rid of them. He or she isnt under any obligation

to sign such an agreement if it departs radically from the job as it was presented to them upon

hiring. Forcing the issue on them could create a legal nightmare for the company.

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For More Information

Books:

Aikin, Olga. Contracts. Woodstock, NY: Beekman, 2000.

Guerin, Lisa, and Amy Delpo. Everyday Employment Law. Berkeley, CA: Nolo Publishing,

2002.

Steingold, Fred S., and Barbara Kate Repa. The Employers Legal Handbook. Berkeley, CA:

Nolo Publishing, 2001.

Web Sites:

FindLaw Employment Agreements: www.techdeals.biz.findlaw.com

HRmaster.com: www.hrmaster.com

HRnext.com: www.hrnext.com

Documents

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