The Importance of Employment Contracts

Murray | Lobb EmploymentLaw

Does your company offer employment contracts to your employees?

For many companies, we cannot stress enough the importance of having well-drafted employment contracts that are tailored to your company’s and your employees’ specific needs. Whether you are a new company just getting started or you have been around for some time, it is a detail that is all too often overlooked.

Below, I’ll discuss why detailed employment contracts are essential for many businesses, how those contracts are formed (intentionally or unintentionally), and key terms and provisions that should be included in your employment contracts.

Employment Contracts in Texas

Texas is an “at will” employment state, which means that employees can be terminated at any time and for any reason as long as that reason is not discriminatory and does not violate local or federal employment laws.

That means, in most cases, an employee cannot sue your company for wrongful termination unless there is an employment contract that gives them the right to sue. So why would your company give its employees a contract that could change their at-will employment status?

Why Offer an Employment Contract to Your Employees?

Employment contracts prevent litigation and lawsuits by former employees by spelling out the terms of employment, the conditions that may lead to dismissal, and including provisions that protect your company’s proprietary information, intellectual property rights, and trade secrets.

Your employment contracts should include terms and provisions that protect both your employees and your company. When appropriate, your employment contracts can also specify that the employee’s status is at will, allowing you to terminate the employee for any valid reason and foreclosing potential lawsuits for wrongful termination.

On the other hand, if you unintentionally form an employment contract with an employee, you may be exposing your company to wrongful termination or other lawsuits without getting the benefits to your company that a well-drafted employee contract could have provided.

How is an Employment Contract Formed in Texas?

Did you know that you may have unintentionally formed a contract with your employees through use of an employee handbook, email correspondence, an offer letter, or verbal statements? Have you considered the potential damage that can be done to your company’s interests by an unintentional partial contract that provides no protection for your company?

If you do not have a formal, written contract with your employees, the courts could still find that you have made promises and created binding obligations to your employees through:

  • Verbal statements made to the employee,
  • Offer letters,
  • Email, texts, or other written correspondence,
  • Implied agreements,
  • Employee handbooks, or
  • Any other form of “offer, acceptance, and consideration” that can be proven by the employee.

In most cases, it is better to have a formal, written agreement that specifies the worker’s employment status, the worker’s and the company’s obligations, the workers’ and the company’s benefits, what is required to change the terms of employment, and what constitutes a breach of your agreement with the employee.

What Should be Included in Your Company’s Employment Contracts?

In addition to the key terms that should be included in every job offer, there are key terms and provisions that should be included in every employment contract, depending on the nature of your business and the worker’s employment. There are also key terms that should be included in employment contracts for specific industries…

Some of these key terms and provisions include:

  • The employee’s job description, including the job title, basic job duties, and the hours the employee is expected to work.
  • The employee’s benefits, including their base salary, bonuses and commissions, stock shares, sick leave and vacation time, employee insurance plans, and the employee’s expected contribution to their insurance plan.
  • Whether the employment is “at will,” whether there is a set term of employment, or the circumstances under which the employee can be terminated for cause or without cause.
  • Whether the employee’s position is exempt from overtime pay requirements.
  • Your company’s policy and procedure manual which can be incorporated into your employment agreement.
  • Whether the employee will be subject to drug testing and what the consequences may be for failing a drug test.
  • Notice provisions that require the employee to provide advance notice before resigning their position and provide penalties for failing to give notice, while maintaining the employee’s at-will employment status when appropriate.
  • The return of company property when the employee leaves the company, including cell phones, tablets, computers, credit cards, books, notes, uniforms, office or vehicle keys, and ID cards.
  • A confidentiality agreement to protect your company’s proprietary information and trade secrets and penalties if the employee violates the confidentiality agreement.
  • A non-compete clause that prevents, to the extent possible under Texas law, a former employee from competing against your company in your company’s trade or profession.
  • A non-solicitation clause that prevents a former employee from soliciting or recruiting your company’s clients or employees.

An ounce of prevention is worth a pound of cure, and, for many companies, a well drafted employment agreement is critical to both retaining essential employees and preventing unnecessary litigation when an employee leaves the company.

Please feel free to call one of our Murray Lobb attorneys about any of your employment law needs, including issues of unfair competition, non-compete, non-solicitation, non-disparagement, confidentiality, and severance and release agreements, employment discrimination claims, employee/independent contractor status, overtime and wage questions, or representation before the Texas Workforce Commission, EEOC, or Department of Labor.