“The thing that’s different about the business environment in America than in China or Russia is that here, contracts will be enforced,” says Mark Landes, a Columbus partner with the law firm of Landes, a business litigator, advises small business owners to have a solid understanding of “what is being agreed to today to prevent misunderstandings and litigation tomorrow.”
Bill Nolan, managing attorney of the Columbus office of Barnes & Thornburg, says one thing business owners should be aware of is that a document needn’t be labeled an “employment contract” or an “employment agreement” to be construed as such. “An offer letter is almost certainly a contract if accepted. A contract can be created by an exchange of e-mails. A contract may not even be written, though of course it’s hard for either side to prove anything years later if it is not,” says Nolan.
Landes agrees. “It’s easy to be in a contract and not even know it. You don’t need a writing or even set terms. If you think you might be in a deal, you probably are,” he says. Therefore, he warms, “be careful about even what you say to prevent the creation of an oral contract.”
When it comes to contracts of employment, Nolan says:
- Compensation or benefits agreements are not simple and ordinary. Common problem areas are bonuses and commissions. For example, what happens to them if and when the employment relationship ends before the first payment is made? The employer and employee can set that up however they would like, but it is important to clearly delineate the agreement’s intention to avoid future misunderstandings.
- The agreement should be clear about how an employee can be terminated. In many states, the default is “at will” employment. Consult with an employment law in your state to determine which laws govern such matters.
- Be mindful of any restrictive covenants binding the employee during and after employment. Those could include agreements to protect the company’s confidential information, covenants not to work for a competitor for a specified period after the relationship ends or a prohibition on soliciting the company’s employees and/or customers for a period after the relationship ends.
Employers should be mindful there are “limits on the enforceability of such covenants,” says Nolan. For example, he says, rarely would a no-compete clause that extends for several years be fully enforceable. However, just as laws governing the termination of employment vary from state to state, so the laws regarding the enforceability of employment covenants.
Landes is unequivocal about the importance of non-compete agreements. “If you have an employee and you don’t have a non-compete agreement signed, you are probably stupid,” he says.
No matter the type of contract a business owner enters into, it is imperative the document specify which state’s laws apply and where disputes must be litigated, if they arise. “Courts in other states do not always fully observe these clauses but it is good to be on your home court if you can be,” says Nolan.
Tami Kamin Meyer is an Ohio attorney and writer. She tweets as @girlwithapen.
