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Employment Contracts: Essential Terms for Small Businesses

Hiring an employee is a huge moment for small business owners. On the one hand, it can be nerve-wracking to hand some job responsibilities over to someone else. On the other hand, hiring an employee means that your business is growing.

If you do not use an effective employment contract, though, hiring a worker can lead to some serious headaches and expose your company to some of the pressing legal issues that small businesses face every day.

The employment attorneys at the Katz Law Group legally represent small businesses as they grow, prosper, and hire more workers. While every situation is unique and your needs may vary, there are eight key terms that small business owners should generally include in an employment contract.

1. Job Duties or the Scope of Employment

One of the most obvious things to include in an employment contract is the scope of the work or the job duties that you expect the worker to perform. Occasionally, though, a small business owner will get caught up in the rush of hiring someone that they leave this out. More often, business owners craft this provision of the contract in ways that they regret later on.

Generally, employers want to be expansive with the job duties section of the contract. The last thing that you want is to find that the scope of employment does not include a task that you need done.

2. Compensation

Another obvious aspect of an employment contract is compensation. However, many small business owners overlook how detailed this section should be. It should go beyond just the worker's hourly wage or salary. It should also include other benefits like paid time off, sick and vacation time, and employer-provided health insurance. The employment contract should also make clear that all of the employee's compensation is outlined in this section and that there is nothing else being offered.

3. Termination

Perhaps the most important contract provision that small business owners tend to overlook is what happens at the termination of the employment relationship. When hiring someone, terminating them is not at the front of your mind. However, employment contracts should include details concerning:

  • What amounts to a breach of the employment contract
  • What severance the employee can expect
  • How the final paycheck will be provided and what will be included in it
  • The process your worker has to follow if they want to quit their job

4. Choice of Law and Forum Provisions

Many small business owners do not include choice of law or choice of forum provisions in their employment contracts, but they can be useful. A choice of law provision specifies which state's law applies to any disputes over the contract, while a choice of forum names the court that will have jurisdiction over the case. Generally, small businesses will want their home state's law and the local state court.

These provisions plan for the potential situation where the worker is terminated, moves out of state, and then files a lawsuit.

5. Dispute Resolution

Small business owners can also include a provision to control how employment contract disputes are resolved. For example, you can require arbitration or mediation or prohibit class actions against your company.

6. Non-Compete Clause

By including a non-compete agreement in the employment contract, your employee will be kept from working for a competitor or otherwise competing against your business after termination.

However, Massachusetts has strict laws about when non-competes will be enforced by courts. You also generally have to include a garden leave clause, which compensates your employee for the time they cannot compete with you.

Whether to include a non-compete clause or not should depend on a variety of factors.

7. Non-Solicitation Clause

Non-solicitation clauses forbid your employee from soliciting others, both during and after their employment. This is an essential clause for an employment contract if your employee would harm your business by:

  • Getting other employees to quit and join a new business venture
  • Convincing your clients to do business with them, instead

These provisions have become more popular since Massachusetts limited how non-compete clauses could be used. However, there are still some requirements that need to be met for a non-solicitation clause to be enforceable.

8. Non-Disclosure Provisions

Finally, non-disclosure agreements, or NDAs, forbid your employee from leaking certain proprietary information about your company that they will have access to while on the job. Also known as confidentiality agreements, these can protect information from trade secrets to client lists.

How you define “proprietary information” is one of the most important aspects of this provision.

Massachusetts Small Business Lawyers at the Katz Law Group

The attorneys at the Katz Law Group have helped small businesses craft effective contracts and agreements, including employment contracts, in Norfolk and Middlesex Counties, as well as in Worcester, Marlborough, Framingham, and the rest of central Massachusetts.

Contact them online or call their law office at (508) 480-8202.

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