Cheryl Miles on February 25, 2016
Do You Need Employment Contracts?
When hiring new employees, it’s important to get things started out on the right foot and enter into a working agreement that’s desirable to both parties. Otherwise, things can potentially get ugly later, and your company may incur some unwanted backlash. This ultimately translates into taking one of two paths — creating employment contracts or at-will employment.
Written contracts typically work in the favor of employees because they diminish the level of control that employers have to terminate or discipline an employee. For example, there may be an agreement that an individual will be employed by your company for a fixed period of time, will receive a certain salary, certain benefits, etc. Most lawyers would advise employers not to enter into this type of an agreement with an employee.
However, there are certain cases when this is a smart move, like if you’re hiring a high-ranking executive who is also in demand by other companies. A written contract with attractive benefits, you can make your company more appealing and persuade them to get on board.
Another reason to draw up a contract is when you need employees to agree to privacy and confidentiality concerns. Known as a restrictive covenant, this can protect your business assets and can serve as a motivator to keep your top employees around for the long haul.
In the absence of a written contract, a working relationship is on an at-will basis in every state besides Montana. This means that employers are allowed to terminate employees, and employees are allowed to quit at any time, as long as it’s legal. The only reasons that an employer couldn’t terminate an employee would be because of illegal actions such as discrimination or retaliation.
This tends to make at-will employment a good choice for the vast majority of employers, especially if they’re not dealing with high-ranking executive employees. It provides plenty of flexibility and makes it easy to part ways with an employee if the working agreement isn’t working out with minimal complications.
However, you should know that you’re still required to adhere to any promises you make to your employees when hiring them and follow any formal policies that are outlined in your employee handbook.
Pros of Employment Contracts
- Can serve as an effective recruiting tool
- Can protect your investments in employees
- Can protect proprietary information
Cons of Employment Contracts
- Not usually practical for most employees
- You can get stuck in an unfavorable working agreement
- You’re more susceptible to litigation
Pros of At-Will Employment
- Offers more wiggle room and makes it easier to terminate employees
- Less administrative work
- You’re less susceptible to litigation and legal headaches
Cons of At-Will Employment
- Can potentially be more difficult to recruit top talent
- Proprietary information is more vulnerable
Understanding the core differences between these two types of agreements should ensure that you choose what’s ideal for your company. It will enable you to enter into working relationships that are in the best interest of your business and empower yourself as an employer.