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Tips for Drafting Effective Employment Agreements

By Casey C. Sullivan, Esq. on December 16, 2015 | Last updated on March 21, 2019

Tell your clients they don't need to be afraid of employment agreements. A well-crafted, finely-drafted employment agreement can allow employers to recruit top talent, safeguard their business interests, and protect against unexpected litigation, whether they're for executives or the rank and file.

The key, however, is in the drafting. Here are some tips and best practices for putting together the best employment agreements for your clients.

1. Make Sure Your Arbitration Clause is Enforceable

If your client wants an employment agreement, it's likely they want it to contain provisions for arbitration and private dispute resolution. Arbitration is becoming a more and more common form of employment dispute resolution, a trend that's supported by increasingly favorable caselaw.

But, an arbitration agreement is worthless if it's not enforceable because it's unconscionable, against the law, or in violation of public policy. Since an arbitration clause can be the difference between a fairly easy resolution and an extended court case, make sure your clauses are drafted in a way that is consistent with federal and state law. The more reasonable your dispute resolution clause is, the more likely courts are to enforce it.

2. Require a Release of Claims Before Severance Payouts

Severance clauses are important for both the employer and employee. For employers, they allow companies to avoid paying the balance of the employment contract when someone is dismissed without cause. For the employee, severance clauses provide an important "cushion" should a worker be terminated or resign.

But severance shouldn't be free money. A good severance clause will require a worker to release any claims against the company before severance payments are distributed. And you don't need to stop at the release. Many severance provisions include, alongside a comprehensive release, a reaffirmation of non-competes, confidentiality and non-disparagement provisions, return of property, and cooperation clauses.

3. Use Jurisdiction-Specific Agreements

Corporate clients may be tempted to use a standard employment agreement for all of their non-C level workers. That's a mistake.

A model or template agreement isn't a wise choice for companies that operate in multiple jurisdictions, where state contract interpretation and employment laws could result in significant differences. For example, state courts in Florida are largely favorable to non-compete provisions. In California, those provisions are almost always unenforceable.
If employment agreements aren't tailored for the individual employee, they should at least be specific to each jurisdiction the company operates in.

Of course, there are more than three ways to improve your employment agreements. Guides like "Negotiating and Drafting Employment Agreements" provide a wealth of knowledge. (Disclaimer: "Negotiating and Drafting Employment Agreements" is published by Thomson Reuters, FindLaw's parent company.) Part of the "Inside the Minds" series, this book brings together the experience and knowledge of leading attorneys, who've spent years crafting effective employment agreements.

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