Employment Contracts: Drafting For Protection And Compliance

Employment contracts can undoubtedly be an invaluable tool for protecting you as an employer from certain risks, all while helping your business primitively mitigate many potentially costly issues. Understanding how to craft these agreements properly will give you a significant advantage in protecting your business.

Employment Contracts Protecting Employers

Employment contracts, while not always necessary for every role, can provide significant protections for you.

Offer Letters And Employee Handbooks

In many cases, a formal employment contract isn’t needed if there is a solid employee handbook and offer letter. These documents can outline essential terms and conditions of employment, such as job responsibilities, at-will employment status, and compensation, providing legal clarity without a detailed contract.

Arbitration Agreements

Employers, particularly those with larger workforces—typically 30 employees or more—can benefit from arbitration agreements. These agreements force employees to resolve disputes through arbitration rather than class-action lawsuits. Rather than a huge class action, the matter can be resolved on an individual basis only.  This can shield your business from expensive litigation.

Additionally, under recent laws, certain individual Private  Attorney General Act (PAGA) claims can also be forced into arbitration, which could prevent employees from acting as PAGA representatives in class-action-style claims if they are found to have no labor code violations.

Trade Secrets Agreements

Employers with proprietary or confidential information can protect their business using trade secrets agreements. These are particularly useful for companies that rely on confidential client lists, processes, or strategies that offer a competitive edge. When employees sign a trade secrets agreement, it becomes easier for employers to prevent them from using or disclosing this information to competitors after they leave. In cases of misappropriation, the employer may pursue legal action, including seeking damages for lost business.

Composing Arbitration Agreements To Ensure Enforceability

You’ll need to include several key elements to ensure an arbitration agreement is enforceable. The agreement should broadly cover any and all claims arising out of or relating to the relationship with the company. This avoids limiting the agreement to employment, empowering it to apply to independent contractors or other types of relationships that may arise in the course of business.

To solidify enforceability, it should also clearly state that it is governed by the Federal Arbitration Act. Doing so ensures consistency with federal arbitration law, which can override state laws that might otherwise limit arbitration.

You’ll also want the agreement to state that the arbitrator, not a judge or court, has the exclusive authority to determine the enforceability of the arbitration agreement and whether the right to arbitrate has been waived. This removes court involvement and ensures that disputes over arbitration remain within the arbitration process.

According to California case law (Armendariz), arbitration agreements must meet the following conditions for enforceability:

• The agreement should guarantee that the arbitrator is impartial.
• Employees must be granted adequate discovery, meaning the opportunity to gather evidence and access necessary documents.
• The arbitrator must provide a written decision that explains the facts and legal reasoning behind the ruling.
• Employers must pay all of the arbitration fees and costs if not required in court. This can range from $10,000 to $15,000 per day.

You’ll want to keep these things in mind when drafting your arbitration agreement. This is significant because arbitration can be expensive, and failure to meet the above conditions could render the agreement unenforceable. It’s also worth noting that agreements should ensure that there are no limitations on statutory remedies; that is, employees can still recover damages they are legally entitled to.

Still Have Questions? Ready To Get Started?

For more information on Employment Contracts In California, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (855) 534-1490 today.