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Considerations when drafting employment contracts

As a business owner, you may hire individuals that provide significant value to your company. Because of their skill sets and demand in the market, those individuals may want certain assurances from your company regarding benefits, salaries and bonuses. In addition, they may want some security regarding their employment.

You may be willing to provide these things, but only if you receive certain assurances in return. You may want guarantees regarding confidentiality, ownership of inventions or intellectual property, non-compete agreements, and other important matters employment matters. A well-crafted employment agreement could address your issues and those of the employee.

Termination

Most employment contracts include notice of termination clauses, along with the right to terminate an employee for violations of the contract. Many also address terminating employment if a physical or mental issue renders the employee unable to fulfill the duties of the job.

By entering into an employment contract, you may give up the right to terminate a particular employee under Arizona's at-will employment rule. If your company decides to terminate an employee outside of the terms of the employment contract, the employee could initiate litigation and claim a breach of contract. This could also create problems with any agreements not to compete upon separation from the company.

You could turn this disadvantage around by ensuring that the termination clauses in the contract address this and other issues as clearly as possible.

Confidentiality

One thing that gives many businesses, including yours, a leg up over the competition is keeping your trade secrets, well, secret. You may require your employees to maintain confidentiality regarding all aspects of their job duties and any processes used such as computer programs, data (including plans and formulas) and machinery. An agreement may include a provision requiring that even after termination employees won't share any such information.

Compensation

Any employment contract will more than likely need to contain particulars regarding salary, benefits and bonuses. It may also include a provision that specifies that those particulars are all the employee will receive, and that the company is not required to provide any additional compensation.

Inventions

You may include a provision that the company retains ownership of any inventions, not the employee. The contract may specify that the employee assigns his or her rights to the invention to the company, assists with the patenting process and maintains confidentiality regarding the invention.

Exclusive employment

You can ask an employee to work only for the company. You may also require the employee not to participate in any other business in any way. This means restricting an employee from consulting with, investing in or otherwise participating in a business that does the same or similar work.

Arbitration and choice of law

It may be advantageous to include provisions regarding the resolution of disputes regarding the employment contract. In order to preserve the reputation and goodwill your company has built, working out any disputes through arbitration or some other alternative to litigation could keep the matter private. In addition, specifying that the laws of a certain state will govern any disputes is also recommended.

Numerous factors and considerations go into the creation of employment contracts. If you find yourself in negotiations with a prospective employee, it might help to have professional legal advice and assistance with the process to increase the chances of protecting your company while making a fair offer to the employee.

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