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Contract provisions are individual clauses found within a contract. Each provision explains a specific part of a contract that provides a duty or a right. The duty or the right within the contract may be for one or all parties named within the contract. A contract provision generally lasts for a time period specified within the document.

Key Provisions for Employment Contracts

Key provisions or clauses found in an employment contract fall into three categories.

  1. A descriptive clause is used to describe certain components of the relationship.
  2. A protective clause protects the interest of the employer because they invest time, money, and resources into hiring, training, and retaining a new employee.
  3. Incentive clauses bring things of value to the employee that make them want pleased with the employment opportunity.

Next, we will explain the 12 important employment contract clauses that should be included within the document.

Scope of Employment / Job Duties

Also referred to as job duties, this clause includes all the duties the employee is required to fulfill. Additionally, it explains what happens if the employee does not fulfill their obligations. This clause may also explain whether they are required to travel, how often travel is required, and if they are required to relocate.

According to sec.gov’s model employment agreement, a Scope of Employment clause should include a clear description of the position the employee will fill, their obligations to the company as well as what they are not obligated to fulfill, and includes a clear explanation that the employee cannot have conflicting obligations.

Compensation

The Compensation clause defines all of the compensation the employee will receive during their employment. It may also include commission rates, sign-on bonus, production bonus and how often it is paid, benefit explanations and how the amounts the employee pays for the elected benefits may be deducted from pay, stock options, and retirement options.

Termination

Termination explains when the employment contract ends. It explains the term of the contract and also includes reasons why the contract may be terminated. Some may renew each year, such as for educators. It may also state that either party may choose to end the contract at any time for any reason or for no reason. It may also state that the employee should provide a resignation letter.

Confidentiality

A Confidentiality clause, also known as a non-disclosure agreement or clause, is used to protect the sensitive information that employees come into contact with during their employment. It is crucial to note that each state has their own laws related to trade secrets and confidentiality. The purpose of a confidentiality clause is to protect a business. However, many states limit what they consider a trade secret. Most states follow the Uniform Trade Secret Act.

Most states also require a confidentiality clause to limit the geographic and time scope to something reasonable.

Read more: Why Sign an NDA is Important

Non-Competition

A Non-competition clause states that when the employee completes their employment, they cannot get into a competing line of business or work for a competitor. This clause could be very specific in nature. Much like a Confidentiality clause, Non-competition clauses are governed by state law.

Many states, such as Arizona, prevent their use for someone who works for a television state, radio station, or radio network. In Rhode Island, a Non-competition clause cannot be used if the employee entering into the contract will earn less than $31,225 in non-overtime, non-weekend, and non-holiday pay.

State agencies and State supported institutions in North Carolina cannot contract with entities that include non-competition agreements or clauses according to Contract Checklist Item I.8 as explained by the Office of Legal Affairs Division of Institutional Integrity of the University of North Carolina.

Read more: What is a Non-Compete Agreement?

Non-Solicitation

A Non-solicitation clause protects the business from the employee attempting to take the other employees, contractors, or clients. A simple version of the clause states that the employee may not call on, attempt to call on, solicit, attempt to solicit, take away, or attempt to take away any employee, contractor, or client the employee became acquainted with during their employment or as a result of their employment. As with the other clauses, the time period of this clause must be reasonable in nature.

Work for Hire

A Work for Hire clause states that any processes, procedures, or products created by the employee during their employment becomes the intellectual property of the employer.

For example, a Work for Hire clause may state that the employee "agrees to assign, convey, and transfer to the employer all right, title, and interest may have to any written program materials, protocols, research papers, other writings, improvements, inventions, techniques, programs, or products they presently have or may have or be deemed to have and in the copyright of such, including but not limited to, all rights of reproduction, distribution, publication, public performance, public display and preparation of works, and all rights of ownership". It would also state the employee agrees to complete any necessary documents to provide the employer with ownership of the creations.

Alternative Dispute Resolution

An Alternative Dispute Resolution clause states that if a situation arises that requires a resolution, court will not be the solution. The parties seek mediation or arbitration, depending on what the clause states. However, some have argued that such clauses are unlawful. Others believe that alternative dispute resolution is a wonderful tool since it costs less and is faster than the court system.

Choice of Law

A Choice of Law provision lists which state the parties agree will govern the employment contract. To write a simple Choice of Law provision, state that the validity, interpretation, construction, and performance of the employment contract shall be governed by the chosen state.

Choice of Forum

A Choice of Forum clause provides the opportunity to choose the court (the forum) where a legal dispute would be heard. According to Cornell Law School’s Legal Information Institute, courts are selective in whether they will enforce this provision.

Read more: Forum Selection in Contract Law

Employee Benefits

An Employee Benefits clause may be listed under Compensation or it may stand alone. It lists all of the benefits the employee receives during the course of employment and how long the employee must wait before they may access those benefits.

Equal Incentives

An Equal Incentives clause is better known as a Bonuses and Incentives clause. It may be listed under Compensation or it may stand alone. It explains in detail any bonus compensation that the employee may receive during their employment. This may include commission that is not part of their base pay, sign-on bonus, performance bonus, annual bonus pay, and any other type of incentives that an employee may be eligible to receive.

Creating an employment contract can take a lot of time. LawDistrict can help by providing a step-by-step employment contract template. Whether you need an employment contract for at-will employment, a contract employee, a part-time employee, or full-time employee, LawDistrict’s employment contract template simplifies the creation process.

Create a Employment Contract Now

Helpful Resources:

Employment Contract - SEC.GOV

Labor and Labor Relation

Mandatory Arbitration - HEIN

Contract provisions are individual clauses found within a contract. Each provision explains a specific part of a contract that provides a duty or a right. The duty or the right within the contract may be for one or all parties named within the contract. A contract provision generally lasts for a time period specified within the document.

Key Provisions for Employment Contracts

Key provisions or clauses found in an employment contract fall into three categories.

  1. A descriptive clause is used to describe certain components of the relationship.
  2. A protective clause protects the interest of the employer because they invest time, money, and resources into hiring, training, and retaining a new employee.
  3. Incentive clauses bring things of value to the employee that make them want pleased with the employment opportunity.

Next, we will explain the 12 important employment contract clauses that should be included within the document.

Scope of Employment / Job Duties

Also referred to as job duties, this clause includes all the duties the employee is required to fulfill. Additionally, it explains what happens if the employee does not fulfill their obligations. This clause may also explain whether they are required to travel, how often travel is required, and if they are required to relocate.

According to sec.gov’s model employment agreement, a Scope of Employment clause should include a clear description of the position the employee will fill, their obligations to the company as well as what they are not obligated to fulfill, and includes a clear explanation that the employee cannot have conflicting obligations.

Compensation

The Compensation clause defines all of the compensation the employee will receive during their employment. It may also include commission rates, sign-on bonus, production bonus and how often it is paid, benefit explanations and how the amounts the employee pays for the elected benefits may be deducted from pay, stock options, and retirement options.

Termination

Termination explains when the employment contract ends. It explains the term of the contract and also includes reasons why the contract may be terminated. Some may renew each year, such as for educators. It may also state that either party may choose to end the contract at any time for any reason or for no reason. It may also state that the employee should provide a resignation letter.

Confidentiality

A Confidentiality clause, also known as a non-disclosure agreement or clause, is used to protect the sensitive information that employees come into contact with during their employment. It is crucial to note that each state has their own laws related to trade secrets and confidentiality. The purpose of a confidentiality clause is to protect a business. However, many states limit what they consider a trade secret. Most states follow the Uniform Trade Secret Act.

Most states also require a confidentiality clause to limit the geographic and time scope to something reasonable.

Read more: Why Sign an NDA is Important

Non-Competition

A Non-competition clause states that when the employee completes their employment, they cannot get into a competing line of business or work for a competitor. This clause could be very specific in nature. Much like a Confidentiality clause, Non-competition clauses are governed by state law.

Many states, such as Arizona, prevent their use for someone who works for a television state, radio station, or radio network. In Rhode Island, a Non-competition clause cannot be used if the employee entering into the contract will earn less than $31,225 in non-overtime, non-weekend, and non-holiday pay.

State agencies and State supported institutions in North Carolina cannot contract with entities that include non-competition agreements or clauses according to Contract Checklist Item I.8 as explained by the Office of Legal Affairs Division of Institutional Integrity of the University of North Carolina.

Read more: What is a Non-Compete Agreement?

Non-Solicitation

A Non-solicitation clause protects the business from the employee attempting to take the other employees, contractors, or clients. A simple version of the clause states that the employee may not call on, attempt to call on, solicit, attempt to solicit, take away, or attempt to take away any employee, contractor, or client the employee became acquainted with during their employment or as a result of their employment. As with the other clauses, the time period of this clause must be reasonable in nature.

Work for Hire

A Work for Hire clause states that any processes, procedures, or products created by the employee during their employment becomes the intellectual property of the employer.

For example, a Work for Hire clause may state that the employee "agrees to assign, convey, and transfer to the employer all right, title, and interest may have to any written program materials, protocols, research papers, other writings, improvements, inventions, techniques, programs, or products they presently have or may have or be deemed to have and in the copyright of such, including but not limited to, all rights of reproduction, distribution, publication, public performance, public display and preparation of works, and all rights of ownership". It would also state the employee agrees to complete any necessary documents to provide the employer with ownership of the creations.

Alternative Dispute Resolution

An Alternative Dispute Resolution clause states that if a situation arises that requires a resolution, court will not be the solution. The parties seek mediation or arbitration, depending on what the clause states. However, some have argued that such clauses are unlawful. Others believe that alternative dispute resolution is a wonderful tool since it costs less and is faster than the court system.

Choice of Law

A Choice of Law provision lists which state the parties agree will govern the employment contract. To write a simple Choice of Law provision, state that the validity, interpretation, construction, and performance of the employment contract shall be governed by the chosen state.

Choice of Forum

A Choice of Forum clause provides the opportunity to choose the court (the forum) where a legal dispute would be heard. According to Cornell Law School’s Legal Information Institute, courts are selective in whether they will enforce this provision.

Read more: Forum Selection in Contract Law

Employee Benefits

An Employee Benefits clause may be listed under Compensation or it may stand alone. It lists all of the benefits the employee receives during the course of employment and how long the employee must wait before they may access those benefits.

Equal Incentives

An Equal Incentives clause is better known as a Bonuses and Incentives clause. It may be listed under Compensation or it may stand alone. It explains in detail any bonus compensation that the employee may receive during their employment. This may include commission that is not part of their base pay, sign-on bonus, performance bonus, annual bonus pay, and any other type of incentives that an employee may be eligible to receive.

Creating an employment contract can take a lot of time. LawDistrict can help by providing a step-by-step employment contract template. Whether you need an employment contract for at-will employment, a contract employee, a part-time employee, or full-time employee, LawDistrict’s employment contract template simplifies the creation process.

Create a Employment Contract Now

Helpful Resources:

Employment Contract - SEC.GOV

Labor and Labor Relation

Mandatory Arbitration - HEIN