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Four Advantages For Employers to Consider Using Employment Contracts

It is common practice that employers generally employ people on an at-will basis without a written employment agreement.  There are actually several reasons to consider using a written employment agreement, while also retaining the at-will employment relationship.

  1. Preserve termination of employment at-will.  A well-drafted employment contract simply anticipates what everyone already understands - that employment will end – but permits the inclusion of additional favorable terms.

  2. Protect Proprietary, Confidential and Intellectual Property. For employees who have possession and knowledge of confidential, proprietary information or other intellectual property, employment contracts are vital for protecting the employer’s intellectual property.  An employment contract with confidentiality, nonsolicitation and nondisclosure provisions will restrict the improper disclosure and use of confidential or proprietary information, both during employment and after employment ends.  In most jurisdictions, a noncompetition provision may be used to prevent critical employees from competing with the employer after they leave employment.  Such provisions must be carefully drafted, especially for use by companies with multi-state operations, in order to reflect differences among state laws.

  3. Provide for arbitration of disputes and shorter limits on time to sue, to reduce potential “extortion."  Employment agreements may provide for resolution of disputes outside the court system through use of arbitration.  Arbitration is often speedier and more private than civil litigation.  Arbitration is not a perfect remedy in all situations but it can minimize litigation, especially where former employees obtain counsel in order to use the potential for substantial litigation costs as a means to extract more favorable severance benefits.  Finally, in states like Kentucky, which has a five-year limitation period in which to file a lawsuit, an agreement can significantly reduce the time in which an employee may assert a claim.

  4. Retain employees for special purposes.  An employment contract is very useful to retain the talents of employees with special skills or knowledge for a period of time.  In general, enhanced benefits or retention bonus provisions can be utilized to provide incentive for the employee to remain with the employer.  In some states (not Kentucky), statutes may prohibit or limit enforcing a contract for personal services against an employee for more than a specific period.  In general, however, this simple device can save an employer many sleepless nights before and after a key employee leaves.
  • Partner

    Phil is a partner and former co-chair of the Labor and Employment Department. He represents employers in defending against employment-related claims in both federal and state courts. He represents clients involving covenants not ...

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