What to Avoid When Creating Employment Contracts

Contracts and other agreements are a vital aspect of running a business, especially when it comes to managing your employees. Employment contracts allow you to lock in the terms of employment in advance, but it needs to be constructed and carefully worded in order to make sure it is effective. Failing to do so could result in an unenforceable contract.

1. Failing to Account for Regulations

2. Failure to Update Agreements

When drafting employment agreements, employment laws and general conditions change over time. The regulations in your industry or changes to employee protections may shift as new legislation comes out, and those changes may require adjustments to the agreement to make sure all its terms remain valid.

The benefits that employees that look for shift over time. You will want to attract the kind of skilled workers you need in your company; you might adjust certain terms in order to make your workplace enticing to them. Annual reviews of your employment contracts are generally recommended in order to keep everything up to date.

3. Misclassifying Employees

Another common mistake that can be avoided is misclassifying employees as independent contractors. While working with independent contractors can yield many benefits, it's important to make sure they aren't treated as employees. Legally, if you treat a worker as an employee, they can be legally considered as such, and you'd be held responsible for making sure you respect all rights and protections afforded to them by law.

Typically, a worker is an employee if you control when, where and how they work, regardless of what terminology you use in the contract.

4. Lacking Consideration

All contracts have three parts:

• Offer: the salary and benefits, often times

• Acceptance: The employee's signature indicating they accept the terms of the contract

• Consideration: The value brought by both parties signing the contract (i.e., payment in exchange for work)

An easy way to think about consideration is that it gives people a reason to want to sign the agreement. In the instance of an employment agreement, it's giving the opportunity to work at your company contingent upon agreeing to the terms in the contract.

However, if you allow an employee to start working at your company without signing the agreement first, that consideration is gone. This is a fairly common issue, and while it can be rectified by providing some other incentive to signing the agreement, its best practice to make sure you handle all paperwork before employment commences.

Another way to look at consideration is what are you going to do if the terms of the agreement are breached? In order for the agreement to be truly effective, there needs to be some kind of consequence if a breach occurs, beyond simply assuming the law will enforce it.

For instance, a contract with a specific period of time for employment can't directly force someone to keep working for your company for the duration of the agreement. However, you can include terms that entice employees to stay, such as making certain benefits contingent upon working through the full term.

5. Failing to Account for Responsibility

In an employment contract, both parties are held responsible for keeping the terms of the agreement. Not only does the employee need to comply with the terms you set forth, but you will be expected to adhere to them as well.

As such, it's important to make sure you either create an agreement that aligns with your current practices or update your practices to comply with the terms in the agreement. In some cases, it might be necessary to adjust internal policies and processes in order to remain consistent with any legal restrictions that may apply.

Creating an Effective Employment Contract

An effective employment contract is consistent with legal regulations and best practices, and it should be constructed in a way that makes it both enforceable and precise. Given the complexity involved in the process of creating these agreements — especially when hiring an employee who can push back on the terms prior to acceptance – it is wise to consult with an attorney.

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