What Components Should Be in An Employment Contract?

There are certain components an employment contract might include, such as a definition of benefits, performance expectation, and noncompete clause.

It is not uncommon for Houston employers to ask their employees to sign a contract at various stages of employment. Often, new hires are asked to sign this type of agreement but existing employees may also have to update their contracts from time to time. An employment contract typically defines an employee's role, as well as the obligations the company has to the employee. To avoid making a serious mistake, it is important for businesses to take the time to understand the different components in this type of agreement.

Benefits offered to the employee

The contract should make the benefits and compensation an employee will receive obvious. Benefits may include medical, dental, paid leave, retirement plans and stock options. The specifics of these should be spelled out within a contract, so both the employer and employee fully understand what is being offered.

Compensation is another important benefit that an employee will expect to see defined within a contract. The base wage may not be the only type of compensation discussed. For example, incentive programs, commission payment and overtime should also be defined in the contract if they are applicable to the position in question.

Performance expected from the employee

Employers should make sure that employees understand what will be expected of them. For this reason, many employment contracts describe production or revenue-enhancement goals, skill-building requirements or sales quotas. When these expectations are clearly spelled out, it makes ending employment due to a failure in performance easier to establish. Some contracts may provide details about the potential severance available should termination occur.

Noncompete clause

Certain businesses may need to include a noncompete agreement within their employment contract. The exact terms of the agreement may vary based on the employer. For example, one company may include a geographic restriction in their noncompete clause to stop terminated employees from working with a competitor in a certain area. Other agreements simply put a restriction on working with companies in the same industry for a certain amount of time after termination. Depending on the state and the terms, this type of clause is not always enforceable.

What elements should this type of agreement have to make it more enforceable? It should meet requirements, such as the following:

  • A legitimate interest must be protected
  • The restrictions are spelled out and related to the larger document.
  • There are reasonable time and geographic limits.
  • All restrictions are supported by reasons.

Without these elements, it may be hard to legally enforce a noncompete clause. For example, the geographic and time restrictions are often argued in court when the limitations are too restrictive. It could leave an employee practically unemployable in his or her particular field, which is often viewed as unreasonable to the courts.

As employers in Texas build their own employment contracts, it may be beneficial for all parties involved if the aforementioned components are included. Working with a knowledgeable attorney may help both parties enter into a smart employment agreement.