Understanding Employment Agreements: What You Need to Know

Employment agreements help define the terms of a working relationship between a company and an employee. While not always legally required, they provide clarity and protection for both sides, ensuring that expectations, responsibilities, and legal rights are well-documented.

But first, do you understand the differences between employees and contractors?

Offer Letter vs. Employment Agreement

Employment terms can be documented in two primary ways:

• Signed offer letter: A simpler document that outlines key employment terms in plain language, often using “you” and “we.”
• Employment agreement: A more formal contract that details legal provisions using terms like “Company” and “Employee.”

Both documents are legally binding and either can work depending on your unique circumstances.

Key Provisions in an Employment Agreement

At-Will Employment

Most employment agreements specify that the job is “at-will,” meaning either the employer or the employee can terminate the relationship at any time for any reason (unless otherwise stated in the agreement or prohibited by law).

Compensation Terms

Employment agreements should clearly define salary, bonuses, benefits, stock options, and any other form of compensation. This section ensures that both parties understand the financial terms of employment.

Intellectual Property Ownership

While employers often own works created by employees, there are exceptions and it is always smart to document this topic in your agreement. For example, it is usually best for the agreement to provide that all employee works are “works made for hire” and that the employer owns the copyright in them. Moreover, it is smart for the provision to go further and include an express assignment of all forms of intellectual property from the employee to the employer. This provision is especially important in creative, tech, and consulting roles.

Confidentiality

Confidentiality clauses prevent employees from sharing sensitive company information with outsiders. These agreements help protect trade secrets, client data, and proprietary business information. The provision should define what is considered confidential (and any exceptions) as well as the obligations (and exceptions). You can get immediate access to my free NDA Course & Templates.

Non-Solicitation

A non-solicitation clause prevents employees from recruiting coworkers or clients away from the company for a specified period after leaving their job. This is critical for employers to protect their business. But they can be very restrictive for the employee and employees should carefully consider their scope and term before signing them. You can learn more about non-solicitation provisions here.

When Should an Employment Agreement Be Signed?

The best time to sign an employment agreement is before employment begins. If an agreement is introduced after employment has already started, the employer must usually provide additional consideration, such as a salary increase, bonus, or new benefits, to make the agreement legally enforceable.

Why Employment Agreements Matter

A well-drafted employment agreement helps prevent misunderstandings and legal disputes. Whether in the form of a simple offer letter or a detailed contract, documenting employment terms upfront ensures clarity and protection for both employers and employees.

*This article is general in nature and is not legal advice.