INTRODUCTION
Employment agreements differ from country to country due to variations in labour laws, regulations, and cultural practices. In India, the Employment Agreements are generally governed by the Indian Contract Act, 1872, and other employment-related laws such as the Industrial Employment (Standing Orders) Act, 1946, and the Payment of Gratuity Act, 1972.
In the United States of America (USA), employment contracts are generally governed by state laws. Such agreements are not subject to any mandatory minimum requirements under the law, and most states do not even require written documentation of the terms. By default, employment relationships in the U.S. are considered ‘at-will’, meaning that either party can terminate the relationship with or without cause or notice. However, it is recommended to have one to avoid any confusion or disputes.
Talking about the UAE, the government introduced new labour laws in February 2022, which brought about some changes. The permanent or indefinite contracts of employees in the private sector were to be replaced with renewable three-year contracts. However, the government introduced Federal Decree-Law No 14 of 2022 in October, 2022 (click here) which eliminated the previously planned three-year limit on fixed-term contracts. Now, the requirement is that the private sector companies shall issue new contracts that define the term of employment, which can be renewed subject to mutual agreement between the parties.
Are you ready to shield your business with an airtight employment agreement? Team YLCC brings you the comprehensive guide on drafting strategies for an Employment Agreement to protect your business from employment woes! This guide is equally helpful for young lawyers learning to draft an Employment Agreement.
BRIEF OVERVIEW OF EMPLOYMENT AGREEMENTS
But, what are Employment Agreements?
Employment agreements are legally binding documents that outline the terms and conditions of the relationship between an employer and an employee or employees.
The key points:
- Written/Oral: These agreements may be in writing or oral, and they establish the expectations and responsibilities of both parties.
- Key clauses: These typically include details such as duties, compensation, non-competition and other restrictive covenants, working hours, leave entitlements, stock options, and termination provisions.
- Use: Such agreements provide clarity and transparency for both employers and employees, and they help to prevent misunderstandings and disputes.
- Term: The terms of an employment agreement may be negotiated by both parties before signing the document.
- Benefits for employers: Enables the employer to set clear policies and procedures, such as disciplinary procedures or performance management plans and protects the employer’s intellectual property rights, trade secrets, and confidential information, etc.
- Benefits for employees: Offers legal protection for the employee’s rights, such as those related to fair treatment, equal pay, and working conditions and enables the employee to negotiate better terms of employment before signing the agreement.
THE TIPS TO DRAFT AN EMPLOYMENT AGREEMENT THAT WILL PROTECT YOUR BUSINESS
An employment agreement can protect your business in several ways. The following are the ways along with the tips to help enhance your Employment Agreement.
Protection of Trade Secrets and Confidential Information:
The agreement usually includes provisions that prevent employees from disclosing confidential information or trade secrets, which can protect your business’s intellectual property and competitive advantage.
You can add certain restrictive covenants to the agreement. These clauses restrict employees from engaging in certain activities that may harm the employer’s business. These covenants can include non-compete clauses, non-solicitation clauses, and non-interference clauses, which can prevent employees from competing with your business or poaching your clients.
Outlining Obligations/Responsibilities of Employee and Expectations:
The agreement can clearly define the employee’s job role, responsibilities, and expectations, which can help prevent disputes and misunderstandings about job duties and performance.
Ideally, it should include a detailed job description that outlines the employee’s duties and responsibilities which will help ensure that the employee understands their role and what is expected of them.
It can also include performance expectations, such as productivity targets, quality standards, and customer service expectations, which will ensure that the employee understands how their performance will be evaluated and what is required to meet expectations.
Additionally, the agreement should clarify the employee’s reporting structure and who they will be accountable to, ensuring that the employee understands who they need to communicate with and who they are responsible to
Drafting Clear Policies and Procedures:
The agreement can establish clear policies and procedures, such as disciplinary procedures or performance management plans, which can help prevent disputes and ensure consistent treatment of employees.
As a suggestion, you can incorporate the following in your agreement:
- Code of conduct: A code of conduct which shall outline the expected behaviour of employees, including prohibited conduct such as harassment, discrimination, and retaliation, ensuring that all employees are aware of the company’s expectations for conduct.
- Grievance procedure: Including a clear and transparent procedure for employees to raise grievances, such as a complaints mechanism or an employee hotline, which will help prevent disputes by providing employees with a clear process for raising concerns or complaints.
- Disciplinary procedure: The agreement should also include a clear and fair disciplinary procedure that outlines the consequences of violating company policies or engaging in misconduct. This can help ensure that employees are treated consistently and fairly.
- Leave policies: The agreement should include policies for different types of leave, such as sick leave, vacation leave, and family leave. By establishing or drafting clear leave policies, employees can be aware of their entitlements and can take leave when necessary.
- Performance management: This clause/sub-clause (depending upon the respected agreement) will outline the policies and procedures for managing employee performance, including regular performance evaluations and development plans. The employees can receive feedback and support to improve their performance.
Classification of Employees:
There are generally two types of employee classification: employees and independent contractors.
Employees are individuals who work for an employer under a contract of employment and are entitled to certain benefits and protections under the law, such as minimum wage, overtime pay, and workers’ compensation. On the other hand, independent contractors are individuals who work for themselves and provide services to a company under a contract for services. Independent contractors are not entitled to the same benefits and protections as employees.
It is important to correctly classify employees and independent contractors in an employment agreement because misclassifying workers can result in legal and financial consequences for the employer. Misclassifying an employee as an independent contractor can lead to back pay claims for unpaid overtime, missed meal and rest breaks, and other employment benefits. This can result in significant financial liability for the concerned Employer/Company.
Claims:
Claims after termination refer to legal claims that an employee may make against their former employer after their employment has ended. These claims can arise from various reasons, such as discrimination, wrongful termination, or breach of the terms and conditions of the agreement.
Here is the role of an employment agreement becoming more vital! The agreement can help protect the employer from claims after termination by including provisions that outline the terms and conditions of termination, as well as the employee’s rights and obligations following termination. These provisions may include:
Therefore, you can do the following:
- Under the termination clause, the employer shall outline the circumstances under which the employer can terminate the employee, such as for cause or without cause. This helps establish clear expectations and can help prevent claims of wrongful termination.
- You can/may include a provision for severance pay, which is a payment made to an employee upon termination, which can prevent claims of breach of contract or wrongful termination by providing some financial support to the employee.
- You can/may include a non-disparagement clause that prohibits both the employer and the employee from making negative statements about each other after termination.
- You can/may include a release of claims, which is a provision in which the employee agrees not to pursue legal action against the employer after termination. This can help prevent claims of discrimination, harassment, or other legal claims.
ADDITIONAL TIPS:
- Define job description clearly: Make sure that the agreement should clearly defines the job role, including the employee’s responsibilities, duties, and reporting structure. The concerned employee(s) should understand what is expected of them.
- Defining the compensation and benefits package: Remember to clearly outline the employee’s compensation, such as salary, bonuses, and any other benefits, such as health insurance, paid leave, or retirement plans. Moreover, this will help in preventing disputes over pay and benefits.
- Specifying the terms of termination: The agreement should clearly define the circumstances under which the employee’s employment can be terminated, such as for cause or without cause. This protects your business by limiting the potential for wrongful termination claims.
CONCLUSION
An Employment Agreement is, therefore, an important document that outlines the terms and conditions of the employment relationship between an employer and an employee. It helps establish clear expectations and protects the interests of both parties. By including specific provisions such as job duties, compensation, benefits, confidentiality, and termination clauses, employers can help prevent disputes and protect their businesses from legal and financial consequences. Additionally, the concerned agreement can be used to establish clear policies and procedures to ensure consistent treatment of employees and prevent potential disputes. It is crucial for both employers and employees to understand the terms of the agreement before signing it, and to seek legal advice if needed. A well-drafted Employment Agreement can be an effective tool to establish a successful and productive employment relationship between the employer and the employee.
Disclaimer: This article is for information purposes only. You are advised to consult a legal professional for drafting such crucial documents for your business.
This article has been written by Team Your Legal Career Coach (YLCC), for queries, please write to us at: queries.ylcc@gmail.com
