Key Takeaways
- Employment contracts should include descriptive, protective, and incentive clauses to define roles, safeguard employer interests, and motivate employees.
- Key provisions include job duties, compensation details, termination conditions, and confidentiality protections.
- Non-competition and non-solicitation clauses help prevent conflicts of interest and protect business relationships.
- Work-for-hire clauses ensure intellectual property created during employment belongs to the employer.
- Alternative dispute resolution, choice of law, and choice of forum clauses streamline conflict resolution and jurisdictional clarity.
Contract provisions, often referred to as clauses, are specific sections or stipulations within a legal agreement that define particular rights, duties, or obligations of the parties involved. These clauses serve as the building blocks of a contract, ensuring they’re clear and enforceable by addressing distinct aspects of the agreement.
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.
- A descriptive clause is used to describe certain components of the relationship.
- A protective clause protects the interest of the employer because they invest time, money, and resources into hiring, training, and retaining a new employee.
- 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.
A severability clause ensures that if one part of the employment contract is found unenforceable, the rest of the agreement remains valid. This protects both parties from having the entire contract invalidated due to one problematic provision.
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.
The Department of Labor's new overtime rule (effective July 1, 2024) increases salary thresholds for overtime eligibility. Employers must ensure compensation clauses align with these updates, particularly for employees earning below $43,888 annually (or $58,656 starting January 2025).
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.
While most states follow the Uniform Trade Secret Act, many are increasingly narrowing what qualifies as a trade secret. For example, general knowledge or skills acquired by an employee during their tenure may not be protected under these clauses.
Additionally, states often require confidentiality clauses to include reasonable geographic and time limitations to ensure enforceability. For instance, overly broad restrictions that extend indefinitely or apply globally may be deemed invalid in some jurisdictions.
Employers should carefully draft confidentiality clauses to comply with state-specific requirements and ensure they are not overly restrictive. These clauses often overlap with NDAs, which explicitly prohibit employees from disclosing sensitive information outside the scope of their employment.
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, which may impose limitations on their enforceability. For instance, some states restrict their use for certain professions or employees earning below a specified income threshold.
The Federal Trade Commission (FTC) has banned most non-compete clauses effective September 4, 2024, except for limited exceptions like senior executives. Existing non-compete clauses for other employees must also be invalidated, and employees notified of this change.
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.
An arbitration clause specifies that any disputes arising from the employment relationship will be resolved through arbitration rather than court proceedings. This approach is often faster and less expensive but may limit legal recourse for employees.
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.
When drafting an employment contract, it’s essential to include carefully tailored clauses that comply with applicable laws and address both parties' needs. Clauses such as severability, confidentiality, and alternative dispute resolution can improve clarity and enforceability.
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:
Table of Contents:
Table of Contents:
Key Takeaways
- Employment contracts should include descriptive, protective, and incentive clauses to define roles, safeguard employer interests, and motivate employees.
- Key provisions include job duties, compensation details, termination conditions, and confidentiality protections.
- Non-competition and non-solicitation clauses help prevent conflicts of interest and protect business relationships.
- Work-for-hire clauses ensure intellectual property created during employment belongs to the employer.
- Alternative dispute resolution, choice of law, and choice of forum clauses streamline conflict resolution and jurisdictional clarity.
Contract provisions, often referred to as clauses, are specific sections or stipulations within a legal agreement that define particular rights, duties, or obligations of the parties involved. These clauses serve as the building blocks of a contract, ensuring they’re clear and enforceable by addressing distinct aspects of the agreement.
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.
- A descriptive clause is used to describe certain components of the relationship.
- A protective clause protects the interest of the employer because they invest time, money, and resources into hiring, training, and retaining a new employee.
- 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.
A severability clause ensures that if one part of the employment contract is found unenforceable, the rest of the agreement remains valid. This protects both parties from having the entire contract invalidated due to one problematic provision.
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.
The Department of Labor's new overtime rule (effective July 1, 2024) increases salary thresholds for overtime eligibility. Employers must ensure compensation clauses align with these updates, particularly for employees earning below $43,888 annually (or $58,656 starting January 2025).
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.
While most states follow the Uniform Trade Secret Act, many are increasingly narrowing what qualifies as a trade secret. For example, general knowledge or skills acquired by an employee during their tenure may not be protected under these clauses.
Additionally, states often require confidentiality clauses to include reasonable geographic and time limitations to ensure enforceability. For instance, overly broad restrictions that extend indefinitely or apply globally may be deemed invalid in some jurisdictions.
Employers should carefully draft confidentiality clauses to comply with state-specific requirements and ensure they are not overly restrictive. These clauses often overlap with NDAs, which explicitly prohibit employees from disclosing sensitive information outside the scope of their employment.
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, which may impose limitations on their enforceability. For instance, some states restrict their use for certain professions or employees earning below a specified income threshold.
The Federal Trade Commission (FTC) has banned most non-compete clauses effective September 4, 2024, except for limited exceptions like senior executives. Existing non-compete clauses for other employees must also be invalidated, and employees notified of this change.
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.
An arbitration clause specifies that any disputes arising from the employment relationship will be resolved through arbitration rather than court proceedings. This approach is often faster and less expensive but may limit legal recourse for employees.
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.
When drafting an employment contract, it’s essential to include carefully tailored clauses that comply with applicable laws and address both parties' needs. Clauses such as severability, confidentiality, and alternative dispute resolution can improve clarity and enforceability.
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:
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