Potential Issues If You Do Not Have Employment Agreements
By: Liandra Izquierdo
What is an employment agreement?
An employment agreement is a written document that an employer and an employee sign that set forth the terms of their relationship. The employment agreement governs the term of the employee’s employment.
An employment agreement can also be used to bind an independent contractor; however, they typically come equipped with their own agreements that they use to govern their practice. For the purposes of this article, we will be focusing on the employee-employer relationship.
What can I find in an employment agreement?
A typical employment agreement includes a description of the employee’s role and their duties to the company. The agreement will address the duties and obligations of the employer in return. These duties and obligations tend to be drafted in a reciprocal matter.
For example, provisions for salary and benefits to be provided by the employer will be followed by Non-Competition or Confidentiality provisions. This demonstrates that for every responsibility one party receives, the other party provides an obligation.
An employer can place virtually any provision that fits the needs of its company within an employment agreement – so long as it complies with applicable state and federal law. While provisions promoting or encouraging illegal activity would not be binding, an employer is entitled to place provisions that provide for the reasonable function of their business. This includes terms such as Non-Competition, Non-Solicitation, and Confidentially provisions which prevent an employee (or former employee) from conducting activity directly adverse to their employer’s interests.
What happens if I fail to have an employment agreement?
Since an employment agreement governs the terms of an employee’s employment with a business, failure to have one can lead to confusion or disputes over the rights obligations between an employee and their employer.
Employment agreements provide a tangible and clear means to govern an employee’s conduct and protect the business. In the world of business, personnel change and leave frequently. It could be beneficial to have a safety net the governs the terms of departure for valuable or otherwise essential employees in order to better prepare and protect the business. Similarly, a business can dictate the length and duration of an employee’s tenure to also provide enough notice to find a suitable replace for the role.
Failure to have an employment agreement also leaves a business vulnerable to predatory business tactics. If a business has employees accessing highly confidential and sensitive business information, it would be prudent to include Non-Competition and Confidentiality provisions to protect proprietary information from theft or personal gain.
Regardless of the terms of the contract, a breach by either party will allow the aggrieved party to enforce their rights through legal means and potentially entitle themselves to additional fees or costs.
For example, Johnny Big is a high-level manager of Business. Johnny Big wants to go work for Bigger Business and decides to suddenly depart that day. Johnny Big is the backbone of Business. Pursuant to his employment agreement, Johnny Big must provide 90 days’ notice prior to his departure. Johnny Big fails to do so. Can he be sued? Yes, for breach of the employment agreement.
|EMPLOYMENT AGREEMENT CHECKLIST|
|Employee job description|
|Employee’s obligations to company|
|Employer’s obligations to employee|
|Duration of employment|
|Benefits – Vacation, Insurance, Disability, etc.|
|Other trade secret protections|
|Grounds for termination – At-Will, for Cause, Reasons for cause, etc.|
|Rules for departure|
|Ownership of employee’s work product|
|Dispute resolution – Mandatory arbitration or mediation|
|Attorney’s fees for the enforcement of the contract|
|Instructions for modification or amendment|
Are there disadvantages to an employment agreement?
Employment agreements are reciprocal by their very nature. In the way it binds the employee’s conduct, an employer is also bound by the terms of the agreement. Therefore, provisions regarding termination or benefits, can be enforced against the employer.
Furthermore, under the principles of contract law, modifications to an employment agreement require both parties’ consent. In this way, a business does not always have the ability to alter the terms of the contract in a timely fashion. When a business seeks to modify its employment agreement, it must renegotiate the terms with the employee, who is then free to reject the new terms.
Meanwhile, employment agreements contain an implied covenant of good faith and fair dealing. Simply put, this means an employer and employee must treat each other fairly. Since this is a factual inquiry, if an employee feels as if they have been treated “unfairly,” then a business could be sued for violation of this covenant
If I don’t have an employment agreement, what can I do?
In circumstances where a business lacks an employment agreement, an implied-in-fact contract may be formed. Based on the conduct between the parties and/or available writings between the parties, Florida courts can determine if a contract was implied between the employer and the employee. This provides either party to enforce their rights and obligations as demonstrated by their course of dealings.
However, these rights and obligations could be limited so its is best to be proactive and draft a document outlining the full scope of rights and obligations a business seeks to enforce. Due to doctrines like the Statute of Frauds, certain conduct must be in writing and signed by the parties in order to be enforceable in court.
Can I be sued for not having an employment agreement?
While Florida does not require a business to issue a formal employment agreement, the subsequent conduct between the parties can open them to liabilities.
Assuming the Statute of Frauds does not apply, circumstances may arise where an employer benefits from the work of an employee but fails to pay for the full scope of their work. In this event, the employer could face an action for Unjust Enrichment. Even if this was an innocent mistake or done pursuant to some term, without a written contract outlining that term, the employer would have to prove that fact in court. Likewise, any other accidental or mistaken behavior on the part of either the employee or employer could potentially be deemed “malicious” and open the party to various tortious action.
What do I do?
Drafting an employment agreement is a tricky and personal task. It requires a careful assessment of the business’ needs and the business’ resources. A licensed attorney is best suited for drafting these documents, as they will understand the language necessary to capture your business’ needs while also suggesting additional clauses to best protect your business.
If you are interested in learning more about employment agreements or would like one, reach out to one of our attorneys who will gladly assist you with this process