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An employment agreement is a formal agreement that specifies the conditions of the relationship between an employee and an employer including compensation and expectations. Also referred to as employment contracts, they are often executed for a specified period, typically one year. 

Not all states require employers to enter into employment agreements.  Many states, like the state of Texas for example, are “right to work” or “employment at will” states.  An “at will” employee can end his or her employment for any reason at any time. Likewise, an employer can terminate an “at will” employee’s employment agreement at any time for any reason, so long as the reason is not an illegal reason, such as racial or gender discrimination.

Although an employer may not be required by law to have a contract of employment when hiring its employees, many employers use employment agreements.  At first glance, employment agreements may seem intimidating because they contain legalese and can be lengthy. Prospective employees may also be afraid to ask questions about the provisions of their employment agreement, fearing any inquiry might jeopardize their potential employment. Nevertheless, many of the provisions in an employment agreement provide benefits and protections to both employers and employees. 

Below is a list of provisions often found in employment agreements and a brief summary of the benefits:  

• Job Description and Duties.  This provision defines the scope of the job and gives the employee an understanding of what the employer will and will not expect of them.  This provision helps avoid misunderstandings surrounding the employee’s job responsibilities and may also provide guidance on how the employer will measure the employee’s performance.  This provision can protect an employee because it limits an employer’s ability to arbitrarily change or expand an employee’s duties once the employment has begun.

• Compensation and Benefits.  This provision defines the employee’s pay and benefits, which often include whether an employee is paid by salary or on an hourly basis, whether overtime will be paid, whether vacation and/or sick leave shall be accrued, whether insurance is available, and what, if any, bonus the employee may be entitled to. 

• Drug Testing Program.  Many employers require their employees to abstain from the use of illegal drugs and may require employees to undergo random drug testing. The employment agreement should state whether such a program exists, and if so, define how the program is run. 

• Length or Term of Employment.  Some employment agreements specify a period of time, or term, that the employment is to last.  Once that period of time has passed, the employment generally ends unless both the employee and the employer mutually agree to renew or extend the agreement.

• Termination of Employment. This provision defines circumstances in which an employee could be terminated “for cause” and/or “without cause.”   This provision also typically requires the employee return certain property to the employer, including a company vehicle, computers, cell phones, uniforms, and identification cards.

• Confidentiality Agreement.  A confidentiality agreement is a provision that imposes a duty onto the employee to protect the employer’s confidential information and trade secrets, both during the course of employment and after the employment has concluded.  A confidentiality agreement can impose a variety of civil penalties on an employee if the confidentiality is breached, including the financial loss incurred by the employer.

• Covenant Not to Compete/Non-Competition Clauses.  This is a provision in which an employee agrees not to compete against an employer in a particular profession or trade once employment has ended. Employers and employees should recognize that non-compete agreements have legal limits.  Employers who want to include a non-competition agreement in an employment agreement should consult an attorney to ensure that they have the appropriate terms to create an enforceable agreement. Likewise, employees should seek legal advice before signing a non-compete agreement, as it may significantly limit the employee’s ability to seek future employment.

• Non-Solicitation Clauses.  Typically, this provision prohibits an employee from soliciting or recruiting clients and/or coworkers away from the employer.  Such solicitation typically arises in instances where an employee leaves a job for new employment.

The Diefenbach Group understands the benefits and pitfalls employers and employees may encounter when it comes to employment agreements.  Whether you are a hiring business or an individual seeking employment, our team is here to assist you with your employment agreement needs. 

Arbitration, a common form of alternative dispute resolution (“ADR”), is a way of resolving a legal dispute without suing and going to court. Arbitrations are used in many areas of law including business and consumer disputes, labor and employment disputes, and family law matters. 

The arbitration process can be similar to proceedings in a court case. The parties often have lawyers, they exchange information, and there is a hearing where witnesses are questioned, and cases are presented. After the hearing, the arbitrator will decide the outcome. However, arbitration is more informal than litigation and the procedures are simplified.

In arbitration, the parties usually have a more limited right to obtain documents and other information from each other.  Arbitrations often occur in a conference room instead of a courtroom, and the arbitrator is not always a judge, but may be a lawyer, a retired judge or simply a person with experience in a particular industry. Most arbitrations are binding, meaning, the parties must accept the arbitrator’s decision and cannot later try to resolve the same dispute in court.

Before arbitration can go forward, the parties must have agreed to arbitrate the dispute through an arbitration agreement.  Arbitration agreements are usually signed at the beginning of a business relationship – long before there’s a disagreement.  Arbitration agreements can be as short as a few sentences, and are commonly found near the end of a larger contract under a heading such as “Arbitration” or “Dispute Resolution.” Employee arbitration agreements, for example, may sometimes be buried in an employment contract or employee handbook.

An arbitration clause will typically state that all disputes arising under the larger contract must be submitted to binding arbitration. Sometimes, however, the contract might specify that only certain disputes will be arbitrated.

The arbitration agreement may also state how the arbitration will be conducted. It may specify certain arbitration rules, such as the JAMS  or American Arbitration Association (AAA) rules, and it may state whether there will be one arbitrator or a panel of arbitrators.  The agreement may also specify how the arbitrator will be chosen.

Additionally, when the parties in a legal dispute do not have an arbitration agreement, they may still agree to arbitration even after a lawsuit has been filed.

Pros of Signing an Arbitration Agreement

• Arbitration is usually faster and less expensive than litigating a case in court.
• Arbitrations are confidential, so you will not have to publicly testify. The specifics of your dispute will not be in the public court records.
• In arbitration, you can choose who will decide your dispute. This can be helpful if you want a decision maker who has specialized technical knowledge or experience in your industry.
• (Of note: Some employers will not hire you if you refuse to sign an employment arbitration agreement.)

Cons of Signing an Arbitration Agreement

• Arbitration awards cannot be appealed. You must accept the arbitrator’s decision as final.
• You cannot have a jury trial. Juries are often sympathetic to employees, and sometimes you can receive a better result in front of a jury versus an arbitrator.
• The parties’ exchange of information is more limited in arbitration. This can make it harder to develop your case in an employment arbitration or in any other situation where the other party has most of the information and documents.
• If you are asked to agree to arbitration before you even have a dispute, you may not know whether you want to arbitrate or not. If you sign the agreement and decide later that you would rather pursue a claim in court, you won’t be able to – or you will rack up legal fees trying to invalidate the arbitration agreement.
• Like all contracts, arbitration agreements can be one-sided in favor of the party who wrote the agreement. Be on the lookout for this and make sure the agreement gives you an equal voice in choosing the arbitrator, does not limit the remedies available to you, and does not deny you the right to an attorney.

Arbitration agreements are a way to limit litigation costs and keep disputes confidential. But signing an arbitration agreement also means giving up important rights. Before signing, it is important to read arbitration clauses and reject or renegotiate anything that you’re uncomfortable with.

The Diefenbach Group’s team of attorneys are experts in arbitration and understand the pros and cons of arbitration.  Whether you are a business considering incorporating arbitration agreements into your contracts, a party facing arbitration in a legal dispute, or an individual presented with a contract containing an arbitration provision, the Diefenbach Group is here to assist you.