What Employment Agreements Are, and What They’re Not

“Employee is expected to serve as a positive role model.”

Employers often ask the wrong question when it comes to drafting their employment agreements:

Is this legal?

The real question is:

Do you really want it in there?

That’s because the purpose of an employment agreement is not to write out every element of the employment relationship; more is not necessarily better. Some things, like a job description, can evolve over time, and to memorialize them in an employment agreement is counterproductive. Other things, like day-to-day policies, belong in the handbook, and some, like having a good attitude, are never written down anywhere and would best remain unspoken expectations.

The above clause—Employee is expected to serve as a positive role model—which appeared in an actual contract that landed on my desk recently, is a good example of something that should not be in the contract; it belongs either in a handbook policy, or maybe even just left unspoken.

So what does an employment agreement need?

Two things:

1. To memorialize the core terms of the deal; and
2. To clearly set expectations for each side.

What does that entail?

Not all that much, as it turns out.

Here are the main terms that must be in an employment agreement, followed by the sorts of terms that should not be in there.

The Essential Terms

At-will employment

Maryland is an at-will state.

That means that, unless otherwise noted, employment is at-will, which gives each side the flexibility to terminate the employment with or without cause, and with or without notice. Exceptions do exist; you are not allowed to fire someone in violation of public policy (such as the employee’s refusal to commit a crime), for discriminatory reasons, and out of retaliation for exercising legal rights. But by and large, most employment is and should be at-will.

From a drafting perspective, that means making sure that the at-will clause is in clearly communicated right up at the top. There are situations where you will want to make a term contract locking in the employment for a given period of time, and which can only be terminated “for cause,” and if that’s the case, make that very clear, and state what, precisely, constitutes “cause.”

But either way, this piece must be front and center in the contract.

Salary and Benefits

The first thing that employees look for in the contract is the salary. Make sure you spell that out clearly, as well as any commission structure, bonus structure, or equity compensation plan.

Also, make sure to include a very basic description of employee benefits: things like health insurance, PTO allotments (and accrual rate, if it’s not frontloaded), 401k plans, or signup bonuses, to name the most common ones. You can (and should) save the details of these for the handbook and official policy documents, but the essential terms should be in the employment agreement itself.

Restrictive Covenants

This is a fancy way of referring to noncompete, non-solicitation, and confidentiality agreements, and is often attached as an addendum. If you work in an industry where you have bona fide trade secrets to protect, or if you just don’t want them to poach your employees or clients when they leave, make this part of the employment agreement.

The Non-Essential Terms

The following do not need to be in the agreement:

• Policies that apply to the whole company: things like attendance, timekeeping, dress code, workplace conduct, and reporting procedures all belong in the handbook.
• Details of benefits. Just make a note that the plan documents and handbook control.
• Aspirational statements. It is normal to make a comment about how excited you are that this employee is joining, and how you want them to succeed. But to go further and make any sort of statement that implies a long-term relationship, such as “You will play a vital role in shaping the future of this company,” can be construed by a judge as implying more than an at-will relationship. Better to steer clear.

Remember, the goal is to capture essential terms, avoid unnecessary promises, and preserve your flexibility, so that if and when things change (and they will), you are not bound by policies and promises that are no longer relevant.

At Luchansky Law, we routinely draft compliant offer letters, employment agreements, and contracts for clients when they are hiring employees. If you would like us to prepare or review your company’s employment agreements, or if you have employment agreement-related questions, contact us at (410) 522-1020 or email me at aj@luchanskylaw.com, and we will be happy to assist you.