There is a good amount of confusion amongst non-lawyers (and even many lawyers who do not practice employment law) about employment agreements. And while employment agreements aren’t legally necessary at your creative or digital agency, there are still several reasons why you should use them.
Why Use Written Employment Agreements?
While not legally required, a written contract of some sort is necessary to achieve certain goals or legal objectives. These can be “employment agreements” or “offer letters” or similar arrangements. The reasons to use a written agreement over ad hoc discussion of employment conditions are numerous:
- A written employment agreement offers the opportunity to clarify job duties, benefits, or how certain compensation will be determined.
- An employment agreement is necessary to change the default “at-will” nature of employment in most states (except Montana).
- If an employee is to receive compensation or benefits that are different than what is provided to employees generally, that is often best contained in a written agreement specific to that employee.
- Some client contracts have “flow-down” requirements relating to confidentiality and intellectual property that need to be reflected in the agency’s employment agreements.
- If you may someday sell (or receive outside funding for) your agency, the buyer or investor may want to see certain documentation regarding confidentiality, non-soliciation, and ownership of work product created by employees.
Recognizing that an employment agreement can be a helpful tool, what are the recommended elements to an employment contract:
We recommend the following checklist when considering what to include in a written employment arrangement:
- Compensation Info. Include base compensation and bonus program information. Compensation based on referral or commission is a common area of dispute or ambiguity, so consider consulting with your lawyer when drafting these provisions.
- Expense Reimbursement. Specify the general rules for how expenses will be reimbursed. Further detail can be provided in your employee handbook.
- Employment Classification. Federal law and many states have overtime laws for all “non-exempt” employees. Determining whether an exemption applies can be complicated and is a fact-intensive inquiry. If you’re confident that a particular exemption applies to the employee you’re hiring, then it can be a good idea to state that in the agreement and note that it is an exempt job
- At-Will Provision. As mentioned above, we generally recommend that all employees be engaged on an at-will basis and that status cannot be modified except by an agreement signed by the company’s highest-ranking executive officer (e.g., the CEO).
- Severance. While rare for rank-and-file employees, a written agreement is where any pre-defined severance obligations should be outlined.
- Confidentiality: Your agency has its own sensitive information and has sensitive information from its clients. Your employment document should contain provisions ensuring that your employees only use confidential information as necessary for their work and that they don’t disclose that information outside your agency. When drafting confidentiality provisions, make sure they comply with the recent NLRB rulings.
- Intellectual Property: While the law does some work on its own to ensure that an employee’s creations are automatically owned by the company, your contract should go further to make clear that all forms of IP created by employees is owned by the company. This is often necessary to comply with the agreements your agency signs with its clients.
- Updates. Most employees will have changes in their salary, duties, and other aspects of their employment over time. The employment contract should state that the remaining terms of the agreement remain enforceable even if salary, benefits, and other terms are updated from time to time.
Outside of these recommended components, there are several other provisions that an agency may wish to include:
- Privacy Provisions: Certain states restrict what employers can and cannot do with respect to monitoring of workstations, accounts, software, files, etc., and these states may require that employees provide express permission to monitor or review their activities.
- Restrictive Covenants: In certain circumstances, an employer may wish to include post-employment “restrictive covenants,” such as non-solicit of clients or non-recruitment of employees. You can read more about these restrictive covenants and their enforceability here.
- Nondisparagement. Many agencies take comfort in getting employees to promise that they will not disparage the agency. If you include a provision like this, make sure it complies with recent NLRB rulings.
Structuring Your Employee Agreements
Some agencies precede an employment agreement with a more high-level offer letter. Other agencies incorporate the details they care about into the offer letter and that becomes the main agreement for the employee. How you document depends on how you want to communicate with your employees, the type of employee being hired and whether you are a large or small agency.
For most agencies, a relatively simple offer letter accompanied by a 2‑to-3-page employment agreement should suffice. For smaller agencies just getting started, an offer letter with a page of terms attached may also do the trick. And for some (e.g., those doing large projects for public companies or when hiring a high-level executive employee), a more thorough “belt and suspenders” approach may be necessary.
No matter which approach you want to explore, Matchstick is here to help.