Edlin Gallagher Oil + Blum
United States: Can an employment contract reduce the risk of a lawsuit?
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Employment contracts are basically contractual relationships. These legal documents describe the relationship between business owners and their employees. When used wisely, employment contracts can help reduce the risk of litigation in two ways.
#1: Use language in the employment contract that sets clear expectations.
Transparency can help stop frustrations before they start. It is often helpful to include a list of prohibited behaviors, including activities that would result in termination. This way, if a business owner has to terminate an employee because of a violation, the risk of a wrongful termination lawsuit is reduced. It is also advisable to avoid language that might have the unintended effect of altering the presumption that the terms of employment are “at will”.
#2: Use provisions that help protect commercial interests.
There are certain provisions that employers should include in the employment contract to protect their business interests. These may include:
- Confidentiality agreement. This provision helps protect trade secrets held not only by the company but also by its customers. Business owners are also advised to include additional intellectual property protections to cover other sensitive or proprietary information.
- Non-Solicitation Agreement. This part of the employment contract allows the worker to know that he cannot attempt to solicit the company’s customers for his own needs or those of a competitor for a clearly established period of time.
- Non-Compete Agreement. This provision prevents workers from starting their own business in the same market or going to work for a competitor. Courts generally look for reasonableness when enforcing these agreements, so make sure the scope – in terms of time and geographic parameters – is not overbroad.
Unfortunately, even when employment contracts are drafted using these guidelines, a disgruntled employee can still take legal action. It is therefore essential to work with employment lawyers who can help you draft solid agreements to strengthen your defense in the event of future claims.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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