What does this mean?
Apart from commission agreements in some states, a written employment agreement will hardly ever be required. In fact many employers get away with never having one. However, not having any written agreements comes with certain disadvantages. The same goes for having a bad employment agreement or one that contains terms that turn out to be unfavorable to you.
Having a proper written contract allows you to set the terms and conditions of employment in black and white. This includes the term or period of employment, conditions for termination of employment, rate of pay, hours of work etc. You might also include non-disclosure, non-solicitation and non-compete agreements. Essentially, this gives you greater control over your relationship with the employee by having predetermined terms that you want.
It’s not always required - for many non-executive scenarios, it’s uncommon. But when it is necessary, you want to make sure you get it right.
Does this apply to me?
Maybe. If you have employees, particularly upper-management employees, then yes.
Why is making this mistake going to hurt my business?
First one caveat -- in a lot scenarios, a bad agreement is worse than none at all. But, not having one could preclude you from taking advantage of the issues I noted above.
Also, the agreements can be nice because they help you determine things you might not consider when you hire someone, like conditions for termination of employment, specific period of employment, hours, and rules and regulations for the office.
Lastly, if you end up with default rules or if you have a written agreement with terms that are unfavorable to you, you will have to renegotiate them in order for you to change it. Of course, it’s always possible your employee won’t want to renegotiate.
You could avoid this by:
Making sure you have a carefully written offer letter or employment agreement with your employee. Check out our draft employee letter offer agreement for a sample.
Will hired Spencer to develop his app. So Spencer could develop his app, Will shared almost every detail of his company -- client lists, pricing, and all the technology and systems created thus far for the app.
A few weeks before the app was finally finished, Spencer stopped showing up for work. Will called him and asked what had happened. Spencer simply replied that he quit and will no longer be reporting for work.v
A month later, Will found out that Spencer had set up a competing business that his same services but at a lower price. He also found out that Spencer was trying to poach some of Will’s former customers.
Will could’ve avoided all this with a proper agreement that set out the rights and obligations required by all parties.