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The Importance of Employment Agreements

Employment agreements are not just for big businesses and CEOs. Even small companies and organizations can benefit from employment agreements. From confidentiality covenants to post-employment agreements not to compete, employment agreements can be an essential tool for protecting an organization’s valuable assets.

Most employees should have at least a minimal form of an employment agreement. An employee’s position in the corporate or organizational hierarchy, exposure to trade secrets, and relationships with clients, will dictate the issues that need to be addressed in an employment agreement and the amount of protection necessary to adequately protect the organization. Three questions will help you assess whether employment agreements are right for your organization.

1. Do your employees create anything?

Just because your organization does not have something akin to “secret sauce” or the formula for Coke does not mean your employees are not creating things that the organization needs to protect. If your employees are revising computer code, developing designs, working on methods of doing business or refining processes, those employees need agreements to assign these creations, known as intellectual property, to the organization. Simply put, if you pay employees to create, then whatever results come from these endeavors should remain the property of the organization.

Bonus point: If your employees have access to your intellectual property, be sure that your termination procedures ensure that this access is suspended and that all property owned by the organization is returned to the organization.

2. Is anything in the workplace confidential?

If your employees (and independent contractors) have access to information that you would not want to be shared outside the organization, such as customer lists, vendor pricing, client markup, trade secrets, marketing strategies and similar key data, your employees (and independent contractors) should sign a confidentiality agreement that protects this information during their employment and for some amount of time after their employment.

Additionally, the more important the information, the more imperative it is to have security such as passwords or encryption on the information. The more steps your organization takes to proactively protect confidential information, the more likely a court will consider the information valuable enough to warrant legal protection should an employee or former employee steal or otherwise improperly use this information.

Bonus point: Most states have laws that protect an organization’s trade secrets even in the absence of an employment agreement. These laws should, however, be viewed as “extra” protection and not as substitutes for well-written confidentiality and trade secret agreements.

3. Do your employees develop relationships with your clients and each other?

If so, then you should be concerned, and rightfully so, about employees leaving your organization and then soliciting or diverting your other employees or customers. You should consider an employment agreement containing a restrictive covenant. Such contract provisions can limit competition, as well as solicitation of your clients, employees, and even vendors. These types of agreements must be carefully drafted by legal counsel and their enforceability are highly dependent upon the state laws applicable to your respective employees.

If the answer to all three of these questions is “no” (which is unlikely for most organizations), then your organization may not need employment contracts. Regardless, however, your organization should have a comprehensive employment handbook that addresses the confidentiality and intellectual property issues discussed above. Also keep in mind the mere fact that an employee has an employment contract does not mean that employee may no longer be employed “at will,” but careful drafting of the agreements is essential to preserve an employee’s at-will status.