If your company has made a policy of having employees agree to employment contracts, you may be concerned about how the COVID-19 pandemic affects their legality.

Alternatively, the coronavirus outbreak and its fallout may provide reasons to consider using employment agreements in the regular course of your business.

What Are Employment Agreements?

An employment agreement is a legally binding contract between a business and an employee. Some companies use employment contracts for their entire workforce, while others only offer the certainty of an agreement to designated executives.

Generally, employment is governed by what is known as the at-will doctrine. In the absence of an employment agreement, either the employer or employee can terminate their relationship at any time. Historically, under at-will employment, neither party owed the other anything once the job had ended.

The at-will doctrine offers employers great flexibility for staffing decisions. If business slows, the company can simply lay-off workers to cut costs and adjust to lower demand. However, when an employment contract is involved, it modifies the relationship between employer and employee and often changes the at-will nature of the employment.

Employment Agreements During the Pandemic

Your business's ability to respond to the COVID-19 pandemic may be constrained by existing employment agreements. If your contracts contain provisions modifying termination procedures, you face costly decisions. While maintaining current staffing levels might not make sense in the face of steep drops in demand and revenues, reducing headcount can be pricey because of existing employment contracts, including guaranteed severance or human resource expenses.

Alternatively, your employees may be seeking the security of an employment agreement during this time of uncertainty. If you have star performers who are getting restless, you may want to consider offering an employment contract in return for locking them into your company. The pandemic provides an opportunity for negotiating legal agreements that are mutually beneficial.

Establishing New Employment Contracts

For companies that currently do not use employment agreements or those that want to expand the amount of workforce subject to contracts, LawDistrict offers easy-to-use templates. The refined-but-straightforward contract maker can handle all of your business' needs.

In return for offering employees a new contractual arrangement, your company can seek numerous benefits, such as:

  • Defined periods during which an employee cannot leave without repercussions.
  • Non-compete agreements that prevent your investment from becoming your competitor.
  • Non-solicitation agreements that ensure if you lose one employee, they do not poach an entire team.
  • Non-disclosure agreements to protect sensitive information from public eyes.

Any or all of the above may have value depending on your particular circumstances.

Is it Possible To Modify an Employment Contract?

Companies that already have established employment agreements may be interested in modifying the relationship. For example, guarantees of employment that made sense pre-pandemic can no longer make business sense in today's world. LawDistrict can also assist you in tailoring appropriate changes to existing agreements. You can offer permanent modifications to your employment agreements or temporary changes that will only be effective during the pandemic.

For a contract modification to be enforceable, both parties must agree to its terms. Additionally, contract law requires what is known as "consideration." Essentially, this means both sides must receive something of value for their signature. Most courts will not uphold an employment contract or modification that was signed merely to avoid termination. You cannot force alterations upon your staff without offering something else in return.

If you want to adjust your current termination procedures, considering offering a one-time bonus to employees. The employee may give up rights to extensive severance or guaranteed employment in return for extra money now. Other possible areas to negotiate include non-compete agreements, guaranteed raises or promotions, or educational reimbursements. In today's economy, workers are motivated to avoid termination.

Termination of Employment Contracts

Following the provisions outlined for termination in employment contracts is useful to avoid costly breach of contract lawsuits. Litigation over lost salary or improperly withheld severance payments is expensive and can lead to potentially invasive discovery procedures. Without modification, existing employment contracts can delay or prevent necessary payroll reductions.

However, if you have used LawDistrict's contract maker, you will find options for applicable provisions that expressly allow your company to take actions needed to ensure its continuing operations. Such contractual provisions include delays, suspensions, or terminations of the contract's terms in times of upheaval. If the language of the agreement addresses adjustments because of outside forces, it is generally valid.

One final point regarding employment termination during the current pandemic is the Families First Coronavirus Response Act (FFCRA). This federal program affects both at-will and contractual employees. The goal of the FFCRA is to slow the spread of disease by preventing those with valid reasons to avoid work from being terminated. The FFCRA allows emergency sick leave for workers at companies with less than 500 employees if:

  • The worker is subject to a quarantine order or caring from someone under quarantine.
  • Has been told by a doctor or medical professional to isolate.
  • Are COVID-19 positive or symptomatic.
  • Need to care for a child during pandemic-related school closures.

If an employee seeks time off because of exposure to the coronavirus, make sure to seek legal help before terminating their job.

Alternatives To Contract Termination

So, what can you do if your company has seen a severe revenue drop but cannot implement a corresponding payroll reduction due to employment agreements? There are alternatives to contract termination. Again, employees are currently highly motivated to remain employed. The economy is not conducive to job-seeking. Proposing adjustments or modifications to salary, hours, or benefits are all appropriate actions. Many workers will choose less money in return for continued employment at this time.

The best way to seek needed reductions can be by promoting an environment where everyone is on the same team. Displaying the need for cuts and the remedial actions you are taking may make employees more receptive to contract adjustments. These are unprecedented times.

LawDistrict's can tailor employment agreements to your company's needs. Check out our offerings for additional benefits and advice!


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Helpful Resources:
Federal Trade Commission - Equal Employment
U.S. Equal Employment Opportunity Commision - EEOC
Employment U.S. Constitution and Federal Statutes - Cornell Law School