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Find out how to use an employment contract at your small business.

5 Items You Should Have in Your Employment Contract

Most of us would find it convenient to finalize a deal with just a nod and a handshake. This arrangement hearkens back to a simpler time when men and women of good will could come to an agreement without having to sweat over the details of a formal contract.

Actually, the scenario above is something of an exaggeration; the truth is, the details of any important agreement should be captured in a document designed for that purpose.

Small business owners and managers responsible for hiring new staff are familiar with the use of a Contract of Employment. This document, also commonly known as an employment agreement or employment contract, should contain the terms and conditions for a new worker’s employment with the company.

An employment agreement typically contains information about the employee’s job title and description, details about their compensation, what their work schedule will be, and what benefits will be provided by the company.

However, owners or managers sometimes err on the side of being too casual, and fail to include important details in their employment contract that are vital to the well-being of their business.

5 items to always include in your contract of employment

Here are five items you should always have in your standard employment agreement.

1. Conflict of interest

A conflict of interest statement in an employment contract provides guidance for employees that applies both during their working hours and their off hours. A conflict of interest statement boils down to the following rules:

  • Employees will not perform work for other employers, or work on their own self-employment undertaking, during business hours.
  • Employees will not take a second job with a business that is in competition with the employer, or that has a partnership or affiliation with the employer.
  • Employees will inform the employer if a situation develops where the employee’s personal interests could be in conflict with the best interests of the employer.

Including a conflict of interest statement provides employers with a level of assurance that new hires will avoid putting themselves in a situation where their personal life is at odds with their job.

2. Job poaching

When an employee leaves a job to go to a new employer, they will sometimes play the “Pied Piper” and try to convince other employees to follow them to the new company. The same activity can occur if an employee quits their job in order to start their own business.

This is known as job poaching, and it is a serious problem for employers. A business owner can suddenly find themselves losing a number of trained workers from a single department in a short period of time.

A job poaching clause in a contract of employment says that an employee who leaves their job is forbidden from soliciting any of their former coworkers into following them to a new company.

Obviously, a job poaching clause doesn’t actually prevent a former employee from approaching your existing staff members. But, it can provide some legal recourse if the activity is detected and verified.

3. Invention assignment

Employees often have new ideas or come up with new creative properties for their employer. This creation can be part of a worker’s regular job duties, or employees may think of new ideas out of the blue.

Using an invention assignment statement in your employment agreement gives your business exclusive ownership of, and all applicable rights to, any intellectual property someone creates as your employee.

Here are some examples of employee creations that invention assignment gives your business ownership of:

  • Copyrights and usage rights for all written content and images.
  • Patents based on original processes or designs.
  • Trademarks for original names, symbols, and logos.

4. Use of technology

In today’s connected world, employers need to concern themselves with how staff members are using business-owned technology. Workers can develop a possessive attitude towards the computers and mobile devices they use, and a sense of entitlement around having full internet access while at work.

Many of the issues associated with workers’ use of technology can be controlled through HR policies, and the control measures put in place by IT personnel or internet service providers.

That said, it is a best practice to include a use of technology statement in your employment agreement. Doing so reinforces the idea that the company treats the inappropriate use of technology in a serious manner, and that transgressors of the related policies will be threatening their employment status.

Pro Tip: Include an item in your use of technology statement that prohibits employees from posting negative statements about your business on any social media channels or online forums. This has been a growing concern for businesses in recent years.

5. Dispute resolution

Ultimately, every small business owner or manager must deal with disputes between the company and its employees. Many of these disputes are based on incidents of employee discipline or dismissal.

And, far too many of these disputes end up being taken to court. According to the U.S. Equal Employment Opportunity Commission, over 61,000 charges involving employee termination were filed against employers in 2016.

One way to avoid these court cases is to use a dispute resolution clause in your employment contract. This clause states that if a dispute arises out of the employment contract, the involved parties agree to seek a resolution through a negotiation process. This process may include the presence of a professional mediator whose goal is to help the parties find a unanimous settlement.

A dispute resolution clause works to avoid legal action when one of your employees challenges the fairness of a business decision.

Make your employment agreement work for you

Contracts are an integral part of doing business, and the contract you use with each new hire is one of the most important. By including the right statements and clauses in your employee agreement, you can improve the security of your business, and better manage the expectations of new hires.

Law Depot

Aaron Axline is a marketing writer for LawDepot, the premier source for online legal documents and resources. Aaron also works as a technology journalist, creative blogger, and technical writer.

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