The terms included in contracts have major implications for business operations. Business leaders often understand that custom terms in key vendor contracts and agreements with service providers are of the utmost importance for organizational protection. However, they may not grant the same consideration to employment contracts. A surprising number of organizations simply use templates for employment contracts. They fill in the blanks and do not include unique details.
Such an approach may ultimately cause complications later. Addressing specific issues can help reduce the risk inherent in hiring new employees or promoting existing workers. What important contract terms do business leaders often need to customize on a case-by-case basis?
1. Compensation, including bonuses and benefits
Employees who already work for the company or have connections with existing workers might accept a job with certain expectations. They may feel entitled to specific benefits or may have heard about a previous bonus structure that the company no longer offers.
It is of the utmost importance to include detailed provisions about compensation, bonuses and benefits, as well as any profit-sharing or incentive pay, in each worker contract. Particularly when hiring for white-collar and executive roles, detailing what the company intends to provide for the worker can prevent wage disputes later.
2. Termination rules and severance pay
Every employer may have slightly different disciplinary practices and procedures for worker terminations. While rules about discipline and termination may be generic, they can dovetail with the unique terms set for severance pay. Employers may need to include provisions that allow them to withhold or diminish severance packages if they terminate workers for cause.
3. Restrictive covenants
Professionals with access to information about company operations and other trade secrets could misuse that knowledge. They could start a competing business or try to monetize that information by taking a job with a competitor. Restrictive covenants, including noncompete and nondisclosure agreements, can deter unfair competition and offer a means of recourse if workers engage in unfair competition.
There are a variety of other unique terms that businesses may need to officially address in contracts, depending on the type of business and the specific position. Partnering with an attorney to craft custom employment contracts can help ensure adequate protection for businesses when bringing in new talent or promoting existing workers.