Contract Basics: Part Two

Well-Constructed Employee Contracts Are Essential

Effective contracts between employers and employees can significantly improve a business’s success and help to avoid damaging litigation.

—Dan Fredenberg, Esq.

Imagine if you rightfully terminated an employee and that person turned around and sued you. Your success in the ensuing trial would depend almost entirely on the quality and characteristics of the contract that you signed with that person when you hired him or her.

If the contract was weak and did not cover all reasonably foreseeable circumstances, you could be in for a serious and expensive challenge in court. Irrespective of the veracity of the ex-employee’s claims, if specific circumstances are not addressed in the contract, the court may decide in the employee’s favor and you will pay a penalty for injury to that person.

“I can’t tell you how many times we have had clients who used strong contracts and were spared significant lost time and money in litigation,” noted Kevin Perlberg, CFP®, and Managing Partner of Blackhawk Capital Partners. “I know the time and money were significant because we’ve also had clients who were careless with their contracts and ended up losing in court.”

Necessary Standard Clauses for Most Employee Contracts

  • Create a detailed employee handbook that contains all of the company’s policies, including grounds for termination.
  • Include obvious grounds for termination, such as destruction of company property, illegal activity, abusive or inappropriate language, physical violence, theft, and the like. While nearly everyone knows that these are grounds for termination, you can still end up in court if this policy handbook does not include every reasonably foreseeable situation.
  • Conduct training sessions to educate employees on the guidance contained within the handbook.
  • Make sure that policies are enforced fairly throughout the company.
  • Require mandatory mediation for disputes among employees or between an employee and the employer. A clause of this type would require that, should a dispute arise, both parties to the dispute must, by contract, participate in a mandatory mediation program.

If the employees are unable to resolve the dispute between themselves, or if the dispute is threatening someone’s employment, the mandatory mediation clause will compel the disputants to meet with a mediator – an attorney or other professional trained in dispute resolution.

Often, what I see in these situations is that people just have something they want to get off their chest. They want their grievance to be heard by a neutral third party and, in the best case, by the person with whom they are having the dispute. If the mediator is able to help both disputants understand the other’s perspective, this is often enough to resolve the dispute and improve the relationship.

An Example of an Unusual but Effective Element of a Well-Built Contract

Lately, I have been counselling my employer clients to include an anti-disparagement clause in employee contracts. These clauses provide the employer the ability to terminate the employment of employees who gossip negatively or generally disparage the employer or their fellow employees.

An anti-disparagement clause can have a significantly positive effect on productivity and on general corporate attitude, it is a very powerful tool within the context of a small or medium-sized business. It only takes one or two people to have their employment terminated for an anti-gossip clause to start to set a culture of positivity. The benefits of a policy like that are immeasurable but they are immense.

What if the Dispute Cannot Be Resolved?

Of course, not all disputes can be resolved. Some do in fact involve unethical or criminal activity. In these cases too, clear employment policies that are outlined both in strong contracts and in an employee handbook can be of significant assistance in arriving at a fair and equitable termination of employment of the fired employee. Space does not allow us to cover even a small portion of the subject of effective, multifaceted contract employee contracts. However, you can see how important it is to work with an attorney who is highly qualified in contract law when you are devising human resource policies and hiring employees.

Dan Fredenberg, Esq., is a Partner at Fredenberg Beams in Phoenix, Arizona. If you do not have legal counsel of your own please contact us and we will provide you with referral options.

Kevin B. Perlberg, Donald (Trace) W. Tendick, Tom Kueht and Christopher Nei are registered representatives offering securities through United Planners Financial Services, member FINRA, SIPC. Advisory services offered through Blackhawk Capital Partners. Susan Brousseau and Michael Miller offer Advisory Services Only. Blackhawk Capital Partners and United Planners Financial Services are independent companies.

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