Employment Agreements 101

Employment agreements, in the most traditional sense, are contracts that require that the parties stay in the relationship for the specified term.Unless you have signed an agreement with a definite beginning and end date, you are an “at will” employee, which means you, or your employer, can terminate the relationship at any time, without liability, for any reason, or for no reason at all.

Salient Provisions in the Employment Agreement. The salient provisions of any employment agreement are: (1) term and renewal terms; (2) early termination; (3) services; (4) exclusivity; (5) compensation; (6) expenses; (7) paid time off; (8) confidential information and trade secrets; (9) restrictive covenants; (10) other general contract provisions, including dispute resolution, governing law, and jurisdiction, indemnification, notice, waiver, severability, and oral modification. Term and Renewal Terms. The “term” of an employment agreement documents the duration of the relationship. The “commencement date” or the “effective date” is the first day, and the “expiration date” is the last day. Renewal provisions renew the contract on the same terms, so modifications to compensation or other benefits during renewal terms should be outlined in the agreement.

Early Termination and the Effect of Early Termination. Your employer may terminate the agreement before it expires, either with cause or without cause. “Cause” means bad conduct by the employee.

Services to Be Rendered. The employee’s specific job duties; the employer’s expectations, and other terms are set forth in this provision.

Exclusivity. These provisions mandate that the employee not work for any competitive business during the term.

The Compensation Package. Salary, commissions, financial incentives, stock options (if any), health insurance, life and disability insurance, and the manner of payment or delivery of same, together with other employee benefits, are set forth in this provision.

Expenses. The employer’s policies regarding expenses incurred by the employee is set forth in this provision.

Paid Time Off. Paid time off includes vacation time, sick time, bereavement time, family leave, and whatever other time off to which the employee is entitled with pay.

Confidential Information and Trade Secrets; Intellectual Property. These provisions contain specific restrictions on the employee’s unauthorized use, disclosure or dissemination of an employer’s confidential information and trade secrets.

Restrictive Covenants; Intellectual Property. Employers have the right to protect their business from employees leaving to work for a competitor, taking away their customers or employees, or using their confidential information and carefully developed trade secrets for the benefit of a competitor. On the other hand, employees have a legitimate right to continue to be able to make a living. Restrictive covenants prohibit the departing employee from working in a competitive business, in a specific geographic area, for a specific period of time.

Generally, in New Jersey, an employee’s creation is the employer’s intellectual property, if created within the scope of employment and with the employer’s resources, and especially if created in the area in which the employee was hired.

Dispute Resolution. Procedures for resolution of disputes are often included in employment agreements, including mediation (a non-binding negotiation with a third party neutral) arbitration (a binding determination, subject to specific rules), litigation (determination of a court), or some combination of the three. Indemnification. The party required to indemnify, must hold the other party harmless from its acts that cause damage to the other party.

Other Important Provisions. The notice provision mandates just how legal notice should be delivered to be deemed effective. A waiver provision provides that a party may elect not to take action against the other breaching party, but still may enforce its rights against future breaches. If one provision of an agreement is deemed to be unenforceable, a “severability” provision protects the enforcement of the rest of the agreement. A “no oral modification” or “integration” provision means that the four corners of the contract govern the relationship, regardless of what any party says prior to, or after execution, and anything the parties said or agreed to prior to the execution of this agreement is “integrated” or “merged” into this agreement. There are many other often called “boiler plate” or “miscellaneous” type provisions in these agreements, and each such provision must be carefully reviewed and considered.

This article is a summary of employment agreement provisions, but does not take the place of good legal advice from a skilled attorney who is well versed in employment law.

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