How to Create an Employment Agreement

Party Information

Begin by specifying the contact information for the parties. For the employer’s address, be sure to use an address where the employee can send any notices that may be required under the agreement. This is usually the employer’s principal place of business or corporate headquarters. You will also indicate the employer’s business type. Select “Other” if the employer’s business type is not included as one of the options.

Important Dates

Next, enter the effective date of the agreement. This is the date on which the agreement will formally begin to operate, which is often the date on which the parties sign it, but need not be. The following question deals with the term of employment and depends on the type of employment being offered.

At-will employment is the most common employment type found in the United States. This occurs where either party may terminate the employment at any time and for any reason (or no reason at all). This is meant to protect both the employer and employee if the situation is not working out. For instance, maybe the employee is just not right for the position, or maybe the employee needs to quit to attend to a family matter.

If you want to create an at-will employment relationship, then select “Indefinite term.” To create an employment relationship that is not at-will, select “Fixed term.” Fixed term employment creates an employment contract for a specific period of time. This is often used where both parties want the guarantee that employment will last for the duration of a project or a certain amount of time.

Job Title and Description

There isn’t much legal significance tied to the job title, as two people with the same job title working for different companies can have drastically different roles. However, you should pay a little more attention when it comes to the job description. It is best to leave this broad and not get overly particular about every specific task the employee might engage in from day to day. The employment agreement states that the employer will be able to specify additional job duties when needed. This means that the employee can’t later refuse to do an assignment merely because it wasn’t listed in the employment agreement.

Outside Business Activities

Next, indicate whether the employee is allowed to pursue any outside business activities during employment. Outside business activities include any business activities other than fulfilling job duties for the employer and activities that don’t take up the employee’s time and attention, such as passive investments in the stock market or real estate. This term simply depends on the employer’s preference and how much time the employee will be expected to dedicate to the employer.

Compensation

You have the option to pick between many different compensation structures in your employment agreement, including:

• hourly rate,
• yearly salary,
• yearly salary plus commission, and
• solely on commission.

Select “Other” if one of these does not suit you, which enables you to specify a different compensation structure.

Benefits

When listing the benefits, consider including things like:

• paid time off,
• health insurance,
• pension,
• signing bonuses,
• flexible work hours,
• time to work from home, and
• stock options.

Employee benefits can be any perk or compensation offered in addition to the employee’s regular pay and can even include a company phone or laptop. The terms of the agreement allow the employer to add, remove, or change the benefits being offered at any time, and each benefit will be governed by any separate benefit plan that may exist, if any.

Non-Compete and Non-Solicitation Clauses

LegalNature’s employment agreement allows you to include non-compete and non-solicitation clauses.

• A non-compete clause essentially prohibits the employee from engaging in any activities that directly or indirectly compete with the employer’s business.
• A non-solicitation clause prohibits the employee from soliciting the employer’s customers or other employees into changing their relationship with the employer.

If included, both clauses will prevent these activities while the employee is still employed and allow you to specify how long the prohibitions will last after employment is terminated. If preferred, you can elect to forego including these terms here and instead create a separate non-compete agreement that allows you to customize these terms further and elaborate them in a little more detail.

Confidentiality and Arbitration

You can also opt to include a requirement for the employee to refrain from disclosing the employer’s confidential information and trade secrets. Again, you have the option of creating a separate employee confidentiality agreement to have greater control over these terms. If you don’t put these terms into a separate agreement, then it’s usually a good idea to include them here in your employment agreement. This will help ensure that the employer’s proprietary information stays well-protected.

As to arbitration, including this term will require that the parties submit any disagreement related to employment to a neutral third-party arbitrator for resolution. This can save the parties a lot of time and money compared to going through litigation in formal court.

Notice of Termination

Next, enter in the amount of notice each party is required to give to terminate employment. If you selected at-will employment, then this notice may be given at any time. If you selected fixed-term employment, then this is the notice that is required to end the employment relationship at the end of the term.

If neither party gives notice of its intent to terminate employment at this time, then the agreement will automatically convert to an at-will employment relationship, with all other terms remaining the same. Thus, either party will then have the right to terminate employment at any time and for any reason. Note: in both cases, no notice is required to terminate the agreement for “cause,” meaning a breach of the agreement (or employment law in general) by the other party.

Final Steps

Lastly, insert any additional terms or conditions agreed upon by the parties. This is your opportunity to further customize your document by including any special terms needed. However, normally no further customization is required. If you do decide to include additional terms here, be sure to preview the document first to see all the terms that have already been included for you. Once that’s done, executing your document is as easy as having both parties sign and date where indicated. Make sure that both parties retain a copy of the fully executed agreement for their records.