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Employment contracts: weigh pros and cons

By Ellen Frantz, Employment Law Attorney on Monday, April 9th 2018

la crosse employment law attorney

Employers spend a lot of time, effort and money finding and training the right employees, especially for key positions. They don’t want to see their investment walk six months later for another position with another company.

For companies facing this dilemma they — and the employees they’re trying to attract — may find employment contracts worthwhile.

Employment contracts spell out the terms of employer-employee relationships. They are pretty rare, reserved mostly for highly compensated or specialized positions, and essentially describe what the employee is going to do for the employer and what the employer is going to do for the employee.

Without an employment contract, employees in Wisconsin are employed at will, meaning they can be terminated at any time for any reason, so long as the termination does not violate other laws such as those prohibiting discrimination. It also means employees can leave any time for any reason.

That’s one of many reasons employers (and employees, too) will want employment contracts. Such contracts will limit an employer’s right to fire the employee and the employee’s right to quit and set forth the duration of the job.

Employment contracts can also help entice highly skilled people to work for one business over another. A manufacturing business that needs someone with particular expertise with some new equipment or process, for example, can propose a contract for a specific term, outlining performance expectations and binding the employee to keep its business secrets safe — even if he or she goes to work for a competitor.

Employment contracts can describe how the parties will handle a number of issues, including:

  • Salary and benefits — Compensation terms are included in most employment contracts, but the details vary greatly. Some employment agreements also include severance provisions.
  • Protection of trade secrets and customer lists — Many contracts say very little about compensation and focus more on confidentiality. Employers risk huge losses if an employee leaves, taking strategic plans, client data and other proprietary information to the competition.
  • Intellectual property rights — If the employee will be inventing products or developing new processes, employers likely will want to spell out ownership of any intellectual property developed during the term of employment.
  • Competition — Contracts can, to an extent, delineate an employee’s ability to work for a competing business upon completion of the contract. Businesses need to be careful with non-compete clauses, however, because courts may reject the non-competition portion of the agreement if any of the non-compete terms are overly broad. While employers can bind employees to protect proprietary information forever, they cannot forever prohibit employees from working for competitors.
  • Circumstances that could cancel the agreement — In addition to job performance, there are some other instances that would warrant terminating the agreement. Issues such as disability, company acquisition or natural disasters can all be worked into the terms of the agreement.
  • Businesses should keep in mind that employment contracts work both ways. While they can give employers greater control, they can also limit a company’s flexibility. Unless it’s spelled out in the contract, industry or business changes cannot obviate an employer’s obligations. Once the contract is signed, both parties are bound to its terms.

Companies considering using employment contracts and individuals asked to sign them should both be sure to run the notion and document by someone who understands employment and contract law. Laws vary from state to state, so it’s important to consult an attorney who understands state-specific laws. A knowledgeable advisor can help both parties think through every provision and weigh the impact on themselves as well as their fellow contractor.

la crosse employment law attorneyBy Ellen Frantz, La Crosse Employment Law Attorney. For more questions about employment law, call Johns, Flaherty & Collins, SC, at 608-784-5678. 

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