Written Employment Contracts – Not Using Them Could Destroy Your Small Company

I know… as the owner of a small company you have to wear many hats. You’re just too busy. And anyway, written employment agreements are for big companies. Small companies like yours don’t need them.Well, many small companies do need them. In fact small companies are more vulnerable because they don’t have (and probably can’t afford) expensive lawyers to protect themselves.Here are 4 important reasons why…1. Written employment contracts assure the confidentiality of your sensitive information and trade secrets Confidential or sensitive information and trade secrets about your business give you a distinct advantage in your marketplace. This information must be carefully guarded to prevent it from falling into the hands of your competitors. But often you need to disclose this same critical information to your employees so they can do their work. By including a confidentiality clause in your written employment contract (or having the employee sign a separate confidentiality agreement) you can prevent your employees from disclosing that information or using it for personal gain.2. Written employment contracts protect your ownership interest in work that employees do for your company Believe it or not, your employee could create software programs, musical arrangements, sound recordings, etc. as part of his or her job and then claim to own them. And your employee might be right.Under federal law, works (such as software programs, newspaper articles, musical arrangements, sound recordings, etc.) that a person creates as an employee immediately become the property of the employer. That same law provides that certain works created by a non-employee (independent contractor) belong to the person who created them unless the parties expressly agree in a written document signed by them that the work will be considered a work made for hire.The problem is that this law is still unsettled and, although you might think you have a solid employment relationship with your employee, at some later time he or she might challenge it on a technicality in order to obtain ownership of a work that he or she created.There is a simple way to protect against this. Just include a “Work for Hire” clause in your employment contract. This “Work For Hire” clause satisfies the requirement that the parties expressly agree in a written document signed by them that the work will be considered a work made for hire.3. Written employment contracts prevent former employees from stealing your employees You can prevent your employee from (a) trying to influence any of your present or future employees to leave his or her employment with you or (b) trying to influence any person or company to stop doing business with you.4. Written employment contracts prevent employees from competing against you You can prevent your employee from competing (or working for any company that competes) with you during his or her employment with you and for a stated period of time after such employment ends. This means that when the employee’s employment ends, he or she cannot take a job at a company that is in direct competition with you.(Note: In order for this restriction to be effective, such limitation, whether the geographic area covered or the length of time that it lasts, must be no broader than necessary to protect your business. Furthermore, while a covenant not to compete may ordinarily be imposed on a new employee as a condition of employment, if it is imposed on an existing employee it must be supported by some independent consideration beyond a simple promise of continued employment, such as a raise, a bonus payment, or improved commission terms.)

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