Employment Agreements and How to Navigate
When it comes to creating and maintaining an exceptional workforce, companies are under pressure to be flexible enough to create an appealing work environment while also meeting the legal requirements of the various jurisdictions where they operate. There are a number of instances when a company needs to enter into employment agreements with employees, potential employees, or contractors.
The employment lifecycle follows the path of a worker throughout their relationship with an employer: recruiting, hiring, onboarding, and separation. Each of these stages potentially corresponds with one or more important employment agreements. These agreements include non-disclosure agreements, offer letters, employment contracts (or independent contractor agreement for contractors), arbitration agreements, non-compete agreements, non-solicitation agreements, and separation agreements.
An important aspect of employment law is that it is primarily set at the state level. While federal rules will still govern every state, some states have rules that supersede federal law, while others have rules that supplement federal employment law. Because of these varying rules, companies operating in multiple states should not rely on a single set of employment documents for employees in multiple states without reviewing the relevant employment law requirements where they have or want to hire additional employees.
If you have employees in multiple states or jurisdictions, it can be hard to navigate which documents are needed during the employment lifecycle.
Non-disclosure Agreement
If your organization is recruiting in a competitive industry or for particularly sensitive roles, the process can be made easier by entering into nondisclosure agreements (NDAs) with potential candidates. An NDA is a contract in which an employee agrees not to disclose the company’s confidential information.
NDAs allow two parties to share confidential or sensitive information in order to explore a potential business relationship. The NDA protects the disclosing party by limiting the receiving party’s ability to use the information for any purpose other than determining whether to enter into the relationship. For those who become employed by a company, an NDA can extend into the term of employment and ensure the employee cannot share a company’s confidential information with any outside parties, either during employment or for a certain period of time after separation from the company.
SixFifty’s NDA solution is robust enough to protect companies without being overreaching— and our tool can be used in unique circumstances, such as disclosing information to potential employees or independent contractors across varying jurisdictions.
Offer Letter
When a company decides to make a potential employee an offer, they should complete an offer letter. An offer letter should clearly define the terms of employment offered to a potential employee including the title, compensation, bonus, commission structure, benefits eligibility, start date, and notice of any restrictive covenants a potential employee may be asked to sign. There are also state-specific disclosures that may need to be made in the offer letter if, for example, a new employee is required to enter into anon-compete or non-solicitation agreement. In these circumstances, the offer letter should include a notice that the offer of employment is dependent upon the execution of the non-solicitation or non-compete restrictions. Absent this notice, the restrictive covenants may not be enforceable.
Because employment law is primarily governed by state regulations, it can be difficult for companies employing people in multiple states to ensure compliance with all requirements across multiple jurisdictions. That’s why it’s crucial that an offer letter specifies where the employee will be based, especially if an employee will be working remotely instead of reporting to an office.
In addition, an offer letter should include an integration clause which states that the terms in the offer letter supersede any other offers or promises. This protects a company in a situation in which there may be confusion about what was offered verbally. The offer letter also needs to give the employee sufficient information to know how to accept and whether they will be required to complete additional steps before employment becomes effective, such as passing a background check as a condition of employment.
SixFifty’s offer letter was designed to make hiring employees across numerous jurisdictions simpler given the ever-changing landscape of state and federal employment law. Our offer letter documents are fully customizable and help companies protect their interests in compliance with employment laws that vary across states.
Employment Contract
An employment contract is the legal foundation of an employment relationship and establishes the expectations of each party. The employment contract can set forth the at-will nature of the employment relationship, ensure the company’s confidential information and intellectual property are safeguarded, and include arbitration provisions that help protect the company in the case of an employment dispute.
SixFifty’s Employment Agreements platform includes employee contracts designed for new hires as well as existing employees.
Non-Compete Agreements
A non-compete agreement is a contract in which an employee agrees not to compete with a company during employment, or for a certain time after employment with the company ends. A non-compete can be part of the employment contract, or it can be part of a negotiated departure from the company. Non-compete agreements are notoriously complicated and can be difficult to enforce.Rules governing the enforceability of non-compete agreements vary widely across states. There are several states that specifically prohibit the use of non-competes between employers and employees. In states that do allow non-competes there are a number of restrictions in place to protect employees from overreaching agreements. A non-compete is enforceable only if it protects a company’s legitimate business interest and is reasonable in its geographic, time, and activity restrictions.
As non-compete law undergoes rapid changes at the state and federal level, SixFifty has you covered. Our Employee Contracts tool will guide you through the non-compete law in the relevant jurisdiction and help you create an agreement that accounts for the most recent developments in the law.
Non-Solicitation Agreement
A non-solicitation agreement is a contract in which an employee agrees not to solicit the company’s clients, employees, or other individuals with whom the employee works during employment for a period of time after employment ends. Non-solicitation agreements are, in many ways, easier to enforce than non-compete agreements because their restrictions are more limited. But like non-compete agreements, non-solicitation agreements need to be restricted in time and geographic reach in order to be enforceable.
Six-Fifty’s Employment Contract Tool will help you create a non-solicitation agreement that takes into account jurisdiction-specific requirements to enforce a non-solicitation
Separation Agreement
A separation agreement is an agreement between a company and a departing employee to formalize and document the employee’s departure and describe the nature and implications of that departure. A separation agreement is especially beneficial for a company because it will typically include a waiver and release provision where an employee agrees not to pursue the company for certain employment law claims in exchange for severance pay. Some states require specific language in release provisions to render them enforceable.
Separation agreements can also document the reasons for an employee’s separation from the company, which can help avoid potential employment discrimination lawsuits. By documenting the reason(s) for termination, in the event of a lawsuit, the company can support its defense that termination was for non-discriminatory reasons such as performance, violation of company policies, misconduct, or a reduction in force.
Many state laws require companies to provide certain notices or forms to departing employees, with steep fines for non-compliance. A separation agreement should be accompanied by any required notices or disclosures and document the employee’s receipt of them.
Also, federal law and several state laws require employers to give departing employees a certain amount of time to review a release agreement before signing. At the federal level, separation agreements need to be reviewed for compliance with the Older Workers Benefit Protection Act (OWBPA). The OWBPA requires the employer to give employees a certain amount of time to review the agreement before signing, give employees 7 days after signing to revoke the agreement, and inform employees of their right to consult an attorney before signing the agreement.
SixFifty’s Separation Agreement tool will help you include required notices and ensure that you have included any required language in the release provision, and will include a reminder that the employee is still bound by terms of your employment agreement (non-disclosure, non-solicitation, and non-compete, if applicable).
Independent Contractor Agreement
An independent contractor agreement is an agreement between a company and contractor hired to perform services for the company. This agreement defines the relationship between a contractor and company and sets out compensation, payment terms, and length of the relationship. It can also strengthen the position that the individual is an independent contractor rather than an employee of the company, which is one of the most complicated areas of employment law with significant legal and tax implications. Independent contractor agreements also protect the company and its confidential information by including non-disclosure provisions. They also outline important responsibilities of the contractor, including the contractor’s duty to pay state and federal tax withholding, make unemployment contributions, and obtain workers’ compensation insurance.
SixFifty’s Employment Agreements tool has an independent contractor agreement that can help you create a customized agreement tailored to your needs.
Summary
Your company’s workforce is the lifeblood of your organization. Ensuring that your agreements with your employees or contractors are clear, enforceable, and fair will assist you in building a dedicated workforce. Complying with legal requirements in your employment agreements will also protect you against costly legal exposure.
How SixFifty Can Help
Now that you know what Employment Agreements are and why it’s crucial to have the right documentation in place for your company, check out SixFifty’s Employment Agreements tool to keep your company up to date and compliant in today’s rapidly changing workplace environment.
If you are ready to get started or have questions, schedule a demo today!
