4 things for an employment agreement
We are often asked to review employment agreements. Sometimes, these are ones taken off the internet or internet-based subscription services.
Here are 4 of our observations from reviewing a variety of these.
- Your employment agreement should at least contain key clauses
At the most basic level, all the employment agreements should deal with key concepts such as scope of duties, start date and duration, probation period, salary, leave and other benefits, termination rights and governing law. If the template that you’re using doesn’t contain one or more of these key concepts, it is likely of poor quality. Even if you’ve covered the key concepts, you should be aware that the law sometimes has minimum requirements that cannot be contracted out of.
On the other end of the spectrum, for C-level executives, agreements may include more detailed provisions on compensation including target bonuses and equity participation, detailed grounds for termination, more detailed consequences of termination in different circumstances and post-termination restrictions such as non-competes and no-poach clauses. Some may also want to provide for severance packages and change-of-control protections.
- Be mindful of terms that are more than the bare minimum
In a contract, you’d sometimes have terms that are minimally required for compliance with the laws. You might also include customary terms – terms that are ‘good to have’ or terms that meet best practices. If using a template, you’d have to mindful of terms that are more generous or more restrictive than what the law mandates (some of which which you may or may not want).
Of course, differences in terms amongst templates may be explained by many factors – e.g., an employee’s role, industry norms, a country’s legal and regulatory environment and employer-employee norms prevalent in that country. However, if you’re not mindful of the context in which the agreement is written, you may unwittingly adopt inappropriate measures.
In addition, terms you might adapt from a template may include negotiated positions that may be either employer-friendly or employee-friendly or specific to that employment relationship.
For example, there are various US-based CEO employment agreements readily available and disclosed by companies as a result of their listing or other requirements. You’d have to be careful if adapting these for other employees!
- Pay attention to your termination “for cause” clauses
It is not uncommon for employers to dismiss an employee immediately “for cause”. You should consider specifically identifying certain conduct or events that would justify immediate termination. Misconduct is one of the usual suspects. Even then, the term “misconduct” on its own can be too general.
While general terms like “for cause” or “misconduct” may seem self-explanatory to some, when the stakes are high (such as obligation to pay a hefty severance package), it can be the subject of contentious litigation.
Of course, even if you provide more detail on what “for cause” means, be aware that employees are entitled to apply for reinstatement if they’re terminated without “just cause or excuse”. As a result of recent proposed amendments to the Employment Act, this entitlement may extend to managers and executives earning more than S$4,500. However, specifically identifying certain conduct or events that would justify immediate termination may be helpful in signalling, at the outset, the expectations that the employer had of its employee.
- Customise your non-competes
Employers tend to be sensitive when employees leave with trade secrets and work for a competitor. Yet, post-termination restrictions such as non-competes are notorious for the judicial scrutiny that it receives. Courts are wary of unreasonably restricting the livelihoods of individuals.
By virtue of the fact that non-competes must be tailored to an employee’s role and responsibilities, it is often difficult to find a template that does just that.
For example, one template provided that the employee must not own, manage, be employed or render services to or “otherwise be connected in any manner with any business that then competes with any business of Company or its affiliates”. This is likely too broad and therefore unenforceable.
There are a variety of employment contracts online. A simple template may be good enough for you if you’re looking for something quick and temporary but may not be sufficient if you want a fuller list of concepts and options to consider. We’ve dealt with just 4 things to look out for and there are likely more which you should consider.
Read more on employees’ severance packages and non-competes– 6 lessons on severance packages and non-competes
Read more on on choosing between outsourcing and hiring – outsourcing or hiring? (a spreadsheet for modelling an answer).
Read more on choosing a template agreement – 6 tips for picking a template agreement
Read more about our lawyers’ employee & stakeholder relations experience.
Get in touch to explore how we may help you with your employment agreements.
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