Lost Opportunities: Ten “Outside The Box” Ways to Use Employment Agreements
Michael G. Trachtman
Powell Trachtman Logan Carrle & Lombardo, P.C.
MEA General Counsel
Whether they take the form of a simple letter agreement or a formal document replete with “whereases” and “wherefores,” management-level employment agreements can help your business in many more ways than you probably utilize them. Sometimes, they can be lifesavers.
Most companies understand the need to clearly cover the basics: position/title; at-will status (or term of employment and basis for termination); compensation; bonus/equity opportunities; benefits; obligation to comply with handbook provisions; and so on. Most companies also understand that, if properly drafted, employment agreements can limit an employee’s post-termination right to compete with his or her former employer, and they can help protect against a former employee’s use and disclosure of confidential and proprietary information.
Beyond these basics, however, lies an array of protective strategies that, when properly structured and implemented, can prevent or minimize a myriad of problems. For example …
- Arbitration clauses. Employment discrimination, harassment, ADA, FMLA and similar claims are usually filed with the EEOC or Department of Labor. Those proceedings are, generally, employee-centric — essentially, the agencies provide free representation to employees, and they foist on employers monumentally time-consuming disclosure and related requirements, turning the proceedings into expensive disputes that can take years to resolve. You can avoid agency proceedings through an arbitration clause in an employment agreement, requiring that all claims be decided through private arbitration. The upside is a quicker, more efficient, and, for better or worse, non-appealable ruling. Arbitration is not without its downside, but many companies find that the avoidance of the procedures utilized by government agencies is more than worth it.
- Minimizing the likelihood, cost and impact of employee claims. Whether or not you opt for arbitration, employment agreements can also be used to establish the location where any employer-employee disputes must be filed (for example, only in your home jurisdiction), they can limit an employee’s right to a jury trial (juries will typically identify more with employees than employers), they can provide that the loser pays the winner’s counsel fees, and they can limit the amount of damages an employee can recover. Those kinds of restrictions tend to deter bogus claims.
- Non-solicitation of customers, employees, vendors, contractors. Typical non-competition clauses restrict the post-termination right of an employee to work for a competitor. In many instances, however, valuable employees have enough leverage to refuse to agree to those restrictions. In those cases, an acceptable alternative will often be an agreement that allows the employee to work for whomever the employee chooses, but that imposes an obligation on the employee not to solicit your customers (or specific customers), employees, vendors and/or contractors. That kind of compromise can often bridge the gap between an employer and an employer who otherwise want to make a deal.
- Non-disparagement obligations. Hell hath no fury like an employee scorned… Particularly in the case of an involuntary termination, a contractual requirement that a disgruntled employee not “bad mouth” you to customers or in the media can help to control these situations. These clauses can be difficult to enforce, but the risk of damages and counsel fee obligations can often serve as a valuable deterrent to a former employee who wants revenge.
- Establishing non-exempt status. Government agencies are focusing on the hunt for non-exempt employees who are improperly classified as exempt, and who have not been paid overtime. Similarly, ex-employees will often claim that they should have been classified as non-exempt and were cheated out of countless thousands of dollars of overtime. A job description that helps to establish exempt status can be included in an employment agreement, and can serve as valuable evidence in the effort to fend off these kinds of charges.
- Establishing the employer’s right to inventions and other intellectual property. Typically, whatever an employee creates during working hours belongs to the employer. But, for example, what about an invention, technology, method, or software that is related to or derived from your business, but that was developed on the employee’s own time? An employment agreement can vest the rights to that kind of employee-created intellectual property in the employer.
- Reinforcing the complaint procedure. Employers who have a properly crafted internal complaint procedure (you will need professional advice to make sure) can sometimes avoid liability if the employee does not utilize the procedure, and thereafter files a claim. It is an invaluable risk management tool, and it can be reinforced in an employment agreement.
- Clarifying social media limitations. Who owns the content of a Facebook page or LinkedIn entry that an employee creates on his or her own time and that relates to your business? Do you want to set limits on what employees can say on their own social media? These issues are raising thorny legal issues in innumerable lawsuits, and they can be effectively addressed through employment agreements.
- Use and return of property. Do you provide employees with laptops, smartphones, software and other valuable property or equipment? You may want to prohibit the use of certain property for personal, as opposed to business-related uses; you may want to restrict the right of an employee to copy, email, alter and delete data from your electronic devices; you may want the right to hold an employee accountable for loss of or damage to certain property; and you may want to mandate that all property be returned upon termination.
- Use of employee-owned home computers, portable drives, personal electronic devices. This is becoming a very significant problem – an employee will work at home and, for that purpose, will load data onto their own personal electronic devices. Or an employee, fearing termination or out of spite, may copy data that can be used to harm the employer. At termination, it may become very difficult to track and recover data that is confidential, sensitive or proprietary, such as customer information, pricing or marketing plans, and so on. Contract language will not always prevent this kind of conduct, but even in a worst-case scenario, it can clarify what was and was not prohibited and, properly drafted, it can help you convince a court to award you meaningful relief, at the employee’s expensive.
Let us know if we can help.
Michael G. Trachtman is MEA’s general counsel and the President of Powell Trachtman Logan Carrle & Lombardo P.C., a 30+ attorney King of Prussia-based law firm that has represented businesses and business people for over twenty-five years. He can be contacted at firstname.lastname@example.org. See www.powelltrachtman.com for more information.