Employment Agreements

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An employment contract sets forth the terms of the relationship between an employer and employee. A written employee contract is not required to form an employment relationship, and in some circumstances it may make sense not to have a written agreement. Many times, however, it is a smart move to memorialize the terms of employment.

The issues covered in an employment contract may include, without limitation, the following:

  • Description of what the employee is going to do for the employer (and vice versa)
  • Duration of employment relationship
  • How and on what grounds the employment relationship may be terminated
  • A description or other information about the employee’s duties and responsibilities
  • Compensation and related issues including salary, wages, benefits, vacation time, health insurance, disability leave, etc.
  • Confidentiality, non-compete, or non-circumvent agreements (discussed further below)
  • Ownership of employee’s work product
  • Dispute resolution

In Michigan, like most states, employment is presumed to be “at-will.” This means that an employer can dismiss an employee for any reason, or without “just cause,” and without any prior warning or notice. On the other hand, parties are free to change this presumption by agreeing that employment will end only “for cause.”

Even though Michigan assumes that employment is “at-will,” it is often still a good idea to include this language in the employment contract. Without such language, a discharged employee may claim there was a verbal representation by the employer that the employee would only be discharged for cause. Even if the employer disagrees that any such agreement exists, the dispute may ultimately be decided by a third party, e.g., the judge or jury. Employers can avoid such uncertainty by including clear “at-will” language in employment contracts.

There are many other issues that can be addressed by the use of a written employment contract. This can help avoid disputes during and after termination of the employment relationship.

Non-disclosure and non-competition agreements are closely related to employment contracts, and are sometimes included right in the written employment agreement. It is often advisable, however, to draft a separate document for these agreements.

A non-compete agreement protects employers from losing valuable employees and trade secrets to their competitors. By signing a non-compete agreement, an employee agrees not to work for a direct competitor for a specified period of time after leaving the company. To be enforceable, the length of a non-compete agreement must be reasonable (2-3 years is typical). Non-compete agreements also cannot cover too wide a geographic area or be too broad in the types of businesses in which the employee is prohibited from working.

A non-disclosure agreement is similar to a non-compete and prohibits an employee from disclosing trade secrets or other confidential information of the company. Non-compete and non-disclosure agreements are often combined into a single agreement.