Covid catalyzed huge technological and social shifts that changed the labor market. Now the word on the street is that workers have more power than ever. Whether that’s true or not, employees are asking for more protection. These are often secured with a contract that offers clear parameters for the employment relationship and allows the worker some say over their job terms.
But what are best practices for all involved parties? As a drafter, how can you ensure that your agreement fosters an equitable relationship between employer and employee?
In this blog post, these and other questions are explored through an analysis of a Basic Employment Contract. Key clauses covering employment terms, compensation, and noncompetition are highlighted alongside recommendations for careful drafting of termination and arbitration sections. Ultimately, the aim is to show how the best contracts understand the necessity of employees to maintain a successful business.
Questions in this Episode
- How can the importance of specificity be incorporated within an employment agreement?
- How can drafters deal with the “other employment” that employees pursue outside their main employment in today’s times?
- How can drafters include the rights of employees in their drafting language?
- What is the best drafting approach for the most common clauses in an employment agreement?
- What is the future ecosystem for employment agreements like these?
The Background
This agreement contains basic employment terms such as duties and responsibilities, compensation, vacations, termination, restrictive covenants, and the protection of confidential business information, all of which are important in today’s business world.
|
ARTICLE 1 TERM OF EMPLOYMENT The Employer employs the Employee and the Employee accepts employment with the Employer for a period of ______________________[number] ______________________ [months or years] beginning on the ______________________ day of ______________________, 20____________; however, this Agreement may be terminated earlier as provided in Article 8 or in Paragraph 2.04, 3.07, 7.01, or 7.02 of this Agreement. |
This document is a good starting point. It has a lot of good provisions to look at, both in the employment arena and for any practitioner who drafts contracts in general. The term of employment is critical. It appears to be a very simple thing, but it is something that must be stated with great specificity, especially when discussing how a contract ends. Employees will frequently renew a contract a few times, the employee will continue to work for the company, and suddenly there will be no contract. But they believe there is. Or the employer thinks there is a contract but there isn’t. This is a common problem.
Specific Duties
In Florida and most other states, most employees are what are known as “employees at will.” Except for illegal reasons, they can be hired and fired at any time.
As an exception to the general rule, most employees do not have employment contracts. When you do have them, it is critical that they are carefully articulated and written. - Mark Osherow #ContractTeardown Click To Tweet
|
Specific Duties 2.01. The Employee is employed as a ______________________ [e.g., bookkeeper]. The Employee shall ______________________ [set forth specific duties, e.g., carefully and accurately prepare and keep books of account and balance sheets and perform all duties commonly discharged by bookkeepers, and such other duties of a similar nature as may be required from time to time by the Employer]. |
This applies to an employee’s specific duties because you don’t want an employee hired for a specific job who performs well in that job only to have their job duties changed so that they’re now either underperforming or overperforming in the context of what they’re paid for. This can have consequences for overtime and other aspects of the employment relationship, such as termination for cause or lack thereof.
In the common law, there are no protections or special provisions for such arrangements. It’s a special category of employees. It does not necessarily apply only to high-level employees, but to all employees. It’s a mechanism for defining terms and conditions, but most employers in most employment relationships want to keep their options open, and they want to be able to fire employees for any reason at any time.
Large employers conduct employee reviews and they generally do not fire people unless they have procedures in place to evaluate them on a regular basis. In general, an employee can be terminated for any reason, and at any time. There are times when an employee and an employer want to have a specific relationship to cement the terms, particularly for highly compensated or specialized employees: research and development employees; shareholders who are also employees of a company; and others.
Can Employees Engage in Other Employment?
In today’s world, many employees come into work with other entanglements. They have startup companies that are involved in technology, such as building a platform or websites, or developing intellectual property, among other things. These employees frequently want to protect that information.
|
Engaging in Other Employment [Choose one of the following paragraphs:] 2.07. The Employee shall devote ______________________ [his or her] entire productive time, ability, and attention to the business of the Employer during the term of this contract. The Employee shall not directly or indirectly render any services of a business, commercial, or professional nature to any other person or organization, whether for compensation or otherwise, without the prior written consent of the Employer. [OR] 2.07. The Employee during the term of this contract may ______________________ [specify nature of other employment, e.g., engage in any other business or professional activity provided that none of it is done during normal working hours or at the place of business of the Employer or act as a sales representative for any other person or organization that does not compete with the business of the Employer in any manner whatsoever or continue ______________________ (his or her) present work as consultant for ______________________ Corporation]. |
Everything needs to be carefully delineated. Consider the following when drafting:
- What is the scope of the employment?
- How much time will be devoted to it?
- Is the employer the sole owner of the intellectual property created during the relationship, or does the employee have a portion of it?
- Are there disclosure obligations?
- Will the employer agree to allow the employee to be involved in other aspects of their work outside of the employment relationship, particularly if it is related to what the employer does on some level?
These are complex issues, and depending on the relationship, these concepts should be carefully specified in a contract to avoid future problems.
Ownership Rights of Employees
There are times when it does overlap and the issue of work for hire arises. It is a situation in which you hire someone but own their work while they are working for you.
Work for hire can be a major issue in some situations, and it’s an area where contracts should, for employees with special knowledge, carefully set forth these issues so that later on, when the individual leaves, there’s a clear delineation about who owns what.
|
ARTICLE 6 PROPERTY RIGHTS OF THE PARTIES Inventions and Patents 6.01. The Employee agrees that ______________________ [he or she] will promptly and fully inform and disclose to the Employer all inventions, designs, improvements, and discoveries that the Employee may create, conceive, find, or participate in during the term of this Agreement that relate to the busi- ness of the Employer or to any experimental work carried on by the Employer, whether conceived by the Employee alone or with others, and whether or not conceived during regular working hours. All such inventions, designs, improvements, and discoveries shall be the exclusive property of the Employer. The Employee shall assist the Employer to obtain patents on all inventions, designs, improvements, and discoveries deemed patentable by the Employer and shall execute all documents and do all things necessary to obtain letters patent, to vest the Employer with full and exclusive title to the patents, and to protect the patents against infringement by others. Payment of License Royalties 6.02. If the Employer licenses others to use any of the inventions, designs, improvements, and discoveries conceived by the Employee, the Employer shall pay to the Employee a portion of the royalties received as follows:______________________
All questions concerning whether, when, how, and to whom licenses shall be granted shall be determined in the sole discretion of the Employer. If an invention is conceived by various employees of the Employer or if the licenses granted involve other inventions in addition to that of the Employee, the royalties received shall be apportioned in the sole discretion of the Employer. In either case, the Employee shall receive the above percentages only on the proportion allocated to the Employee’s invention or share of an invention. Trade Secrets 6.03. The Employee during the term of employment under this Agreement will have access to and become familiar with various trade secrets, consisting of formulas, patterns, devices, secret inventions, processes, and compilations of information, records, and specifications, that are owned by the Employer and that are regularly used in the operation of the Employer’s business. The Employee shall not disclose any of these trade secrets, directly or indirectly, or use them in any way, either during the term of this Agreement or at any later time, except as required in the course of employment with the Employer. All files, records, documents, drawings, specifications, equipment, and similar items relating to the business of the Employer, whether prepared by the Employee or otherwise coming into the Employee’s possession, shall remain the exclusive property of the Employer and shall not be removed from the premises of the Employer under any circumstances whatsoever without the prior written consent of the Employer. Noncompetition During Term of Employment 6.04. During the term of this Agreement, the Employee shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business that is in competition in any manner whatsoever with the business of the Employer. Post-Employment Noncompetition 6.05. In consideration of the Employer employing the Employee in a position in which the Employee will gain specialized knowledge and experience and will establish personal relationships with the Employer’s customers, suppliers, and other employees, the Employee covenants and agrees as follows: On termination of employment, whether by termination of this Agreement, by wrongful discharge, or otherwise, the Employee shall not directly or indirectly engage in competition with the Employer in the territory and for the period specified in this paragraph. As used in this paragraph, “competition with the Employer” means entering or engaging in the business of ______________________ [describe business, e.g., developing, designing, manufacturing, and selling solid-state electrical and mechanical systems] as ______________________ [specify capacity in which employee may not compete, e.g, a sales representative or an electrical engineer] either individually, as a partner or joint venturer, as an employee, or as an agent, officer, director, or shareholder of any entity or person. The Employee agrees not to engage in competition with the Employer in the Territory where the Employee is assigned to perform duties pursuant to Article 2 of this Agreement, for a period of ______________________ [e.g., one (1) year] after the date of termination of employment under this Agreement. This covenant shall be construed as an agreement independent of any other provision of this Agreement. The existence of any claim or cause of action of the Employee against the Employer, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Employer of this covenant. In the event of a breach or threatened breach by the Employee of the obligations under this paragraph, the Employee acknowledges that the Employer will not have an adequate remedy at law and shall be entitled to such equitable and injunctive relief as may be available to restrain the Employee from the violation of the provision of this paragraph. Nothing in this paragraph shall be construed as prohibiting the Employer from pursuing any other remedies available for breach or threatened breach of this covenant not to compete, including the recovery of damages from the Employee. |
Common Clauses in an Employment Agreement
Compensation for Training
When dealing with an employee who is being trained by a company and learning the technology for the business, it is often critical to be able to protect that information later. If the person is compensated, the contract refers to that time period, and it specifies what they’re going to be doing, you have a stronger case for enforcement.
|
Compensation During Instruction 3.07. (a) It is understood by and between the parties that in order for the Employee to be able to perform the duties required under this Agreement, it is necessary for the Employee to complete a preliminary period of training, which will last for a period of ______________________ [specify period of time, e.g., five (5) weeks]. As the Employee’s total compensation during the training period, the Employee shall be entitled to the sum of $______________________ per week. (b) In the event that after completion of the training period, the Employee does not, in the opinion of the Employer, show sufficient aptitude to perform the work required under this Agreement in a satisfactory manner, the Employer shall have the option of terminating this Agreement or of requiring the Employee to complete an additional period of training. (c) On successful completion of the training period and on the determination of the Employer that the Employee is competent to perform the work required under this Agreement, this Agreement shall take effect for the period specified and the Employee shall be compensated for services rendered at the rate provided in this Agreement. |
Employers will sometimes claim that something is in specialized training when it is not. In some cases, training can also be specialized, so it’s a good idea for employers who specialize to include compensation for the training in their contracts. It’s a consideration; depending on the relationship, there are reasons to do it and reasons not to.
Non-compete
Employers prefer to use extremely strong non-compete agreements. In general, it is not always in their best interests to have the strongest non-compete agreement possible, because a) it pays to be fair and reasonable most of the time, and b) courts will not always enforce something that is overly broad.
|
Noncompetition During Term of Employment 6.04. During the term of this Agreement, the Employee shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business that is in competition in any manner whatsoever with the business of the Employer. |
Another problem with non-compete agreements is that they are enforced over trade secrets or confidential business information. Those are not always the easiest things to demonstrate. You must demonstrate that you are enforcing it against that type of information due to a legitimate business interest. The employee goes off and starts a new job, and in theory, they’re competing with you. Still, you can’t really show that what they’re doing is affecting your company’s legitimate business interests. When these types of issues arise, they are tough to prove.
Narrowly define a legitimate business interest in the context of trade secrets and confidential business information that employees can and may have obtained from their employer. You don't want to make it so broad that it… Click To Tweet
Termination
This clause is poorly written. Typically, you want to provide some kind of notice and an opportunity to hear, not just language like “you haven’t performed, and this is what we’re going to do and terminate you.”
|
By Employer for Cause 8.01. If the Employee willfully breaches or habitually neglects the duties ______________________ [he or she] is required to perform under the terms of this Agreement, the Employer may, at the Employer’s option, terminate this Agreement by giving written notice of the termination to the Employee. Such termination shall not prejudice any other remedy to which the Employer may be entitled either at law, in equity, or under this Agreement. |
In addition to neglecting their duties, an employer can terminate an employee for a variety of reasons. There could be criminal or financial reasons, such as bankruptcy. There are numerous events that may constitute grounds for termination for cause. Some of them may be curable, while others may not be.
Arbitration
In Florida and most other states, there is a $400 upward fee, but in arbitration, arbitrators are paid by the hour. An arbitration fee is paid to AAA, and the fee is based on the amount involved in the action. It can be a fairly significant fee, tens of thousands of dollars in some cases if it is a highly compensated individual.
|
Arbitration 8.04. Any controversy or claim arising out of or relating to this Agreement, or the breach of this Agreement, shall be settled by arbitration in accordance with the rules of the American Arbitration Association, and judgment on the award rendered may be entered in any court having jurisdiction over the matter. Attorneys’ Fees and Costs 8.05. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs, and necessary disbursements in addition to any other relief to which that party may be entitled. |
“I’m not a big fan of arbitration in most situations,” Mark adds, “but if you’re going to choose arbitration, this is a terrible clause.” Here’s why: it doesn’t say who is responsible for paying for the arbitrators, what is within the scope of the arbitration, how the fees will be paid, what costs will be borne, how many arbitrators there will be—anything about the manner of doing the arbitration or other considerations, such as time for getting into it, whether there will be discovery, or how long things will take.
Ecosystem for Employment Agreements
There is definitely an environment where employees are feeling more empowered. It’s being termed the “Great Resignation.” There are more jobs available than people to fill them, especially skilled jobs. Many people with skills are feeling more empowered, and there are undoubtedly more employment agreements. Not necessarily for high-level employees, because those people will always have employment contracts, but skilled college-educated workers who are mid-level employees are more likely to have employment agreements to protect their employment interests.
Show Notes
Employment agreements are becoming more common in today’s labor market, as workers aim to secure rights and compensation with the power of a contract. Mark Osherow, business litigator, explains that the best contracts are ones that treat workers with respect and facilitate healthy recognition of an employee’s value.
THE CONTRACT: Basic Employment Contract
THE GUEST: Mr. Osherow is Florida Bar Board Certified in Business Litigation since 2006. He is recognized for 2017 as one of the Top 100 in the Miami area (South Florida) ) by Super Lawyers . He enjoys an AV® rating by Martindale Hubbel, an indication of the highest level of professional excellence as recognized by peers. Mark has also been recognized by Best Lawyers 2014-2019 and for 13 years by Super Lawyers for 2007 – 2019 as one of the top 5% of Florida’s attorneys. He was honored with the “Excellence in Writing Award” from TFB for 2003 for his article on the civil theft statute. Mark ran a boutique firm until 2009 which was named a “Go-To Law Firm” by Corporate Counsel Magazine for 2007, in Employment Litigation. Mr. Osherow has decided to continue his tradition of personal top-level excellence in service to his clients through Osherow, PLLC.
THE HOST: Mike Whelan is the author of Lawyer Forward: Finding Your Place in the Future of Law and host of the Lawyer Forward community. Learn more about his work for attorneys at www.lawyerforward.com.
If you are interested in being a guest on Contract Teardown, please email us at community@lawinsider.com.
Interview Transcript
Mike Whelan Hey, everybody. Welcome back to The Contract Teardown Show from Law Insider. I’m Mike Whelan. The purpose in the show is exactly what it sounds like. We take contracts, we beat them up. We are mean to them, make them feel terrible about themselves, and then give them a little pat on the way out the door. I hang out with smart friends like Mark Osherow here. How are you today, Mark?
Mark Osherow I’m doing great. Thanks for having me.
Mike Whelan Absolutely. We are talking about something that people run into a lot, but it’s especially relevant right now because employees—we’re in like the worker power period with people—workers—having more power. So we are talking about this document. Let me share it with you real quick. It is a basic employment contract, a fairly generic one. Mark, before we dig into it, tell me about this document. When are we going to see it?
Mark Osherow We’re going to see basic terms of employment, including duties and responsibilities, compensation, vacations, all the normal things you see. But there’s also some interesting provisions in terms of termination, restrictive covenants and things like that—protection on confidential business information—things like that that are important in today’s business world.
Mike Whelan Great. And we’ll dig into all of those. But before we do, tell us about you, Mark. What’s your background? When do you run into documents like this?
Mark Osherow Very frequently. I’m a board-certified business litigation attorney. I deal with a fair spectrum of employment law issues in my practice.
Mike Whelan Great. Well, we are going to use that wisdom to dig into this document. And I suspect that what is true for most contracts—or true for this kind of contract—that there’s a lot of copy paste in this space. You know, you wouldn’t draft these things from zero. So by using this sort of generic document, what I want to do is maybe use your wisdom, especially as a litigator, to help us make decisions as we’re looking through which of this language should we change, what should we keep, what’s good about it. So we’ll do that by starting up at the beginning under Article 1, Term of Employment—unless you want to give us some kind of background on the document—give us this idea of the term. Do you like the way this document deals with it? Would you change anything here?
Mark Osherow Well, first of all, I chose this document because I thought it was a good place to start. It has a lot of good provisions to look at, both in the employment arena and just in general for any practitioner who’s drafting contracts. So the term of employment is really important. It seems like it’s a very simple thing, but it’s something that needs to be set forth with great specificity, especially when you’re talking about how a contract ends. Because what frequently happens is employees will renew a contract and then they’ll renew it again, say, and then the employee will keep working at the company and there’s no contract. But they think there is. Or the employer thinks there’s a contract, but there really isn’t one. So I’ve seen that problem happen many times.
Mike Whelan Yeah. And I’m assuming with this kind of a document, you know, obviously there’s a lot of state specificity in terms of whether you have to have, you know, an identified term or not. But when you’re using this kind of, you know, to place the term on there, it’s to say that we don’t have a forever contract, presumably. Under Article 2, it starts with the specific duties. And again, a lot of specificity where we’re taking out the vagueness of, hey, you’re hired. What do you think someone should include in a section like this in terms of specific duties?
Mark Osherow Well, before we address that, I’d just like to say in Florida in particular, and most other states, most employees are what are known as “employees at will.” They can be hired and fired at any time except for an illegal reason. And so, most employees don’t have employment contracts. Employment contracts are kind of an exception to the general rule. So when you do have them, it’s all the more important that they be carefully articulated and written. And that applies to the specific duties of an employee, because you don’t want an employee hired for a specific job who performs well in that job. and then their job duties are changed in such a way that they’re now either underperforming or overperforming in the context of what they’re getting paid for. And that can have ramifications in terms of overtime and various other aspects of the employment relationship, including termination for cause or lack thereof. So those are things to keep an eye out for.
Mike Whelan Sorry. Let me step back with you on that then. If presumably in most of these relationships, you know, people aren’t creating contracts and therefore it falls on common law, rules and regulation and whatnot. It sounds like the only time you would create a document like this is because you’re looking for specificity. And so it seems like in order to fulfill the purpose of a document like this, that’s why you would include: Hey, this ends on this date. You’re going to do this. We’re going to give you that. It’s, like, very clear. Is that a fair statement?
Mark Osherow I think that’s a fair statement. The other reason is because you want to incentivize certain employees to come into your employ. So if you’re taking a high-level employee from another business and you are making certain promises to them and they’re giving up, say, a large salary and benefits somewhere else, that individual wants to know what their expectations are within the context of a new employment relationship.
Mike Whelan So who’s usually asking for this kind of document? Is it usually the employer that’s like, you’re special, we’re going to give you something different? Or is it the employee saying, Hey, I’m special, you need to give me protections that aren’t even in the common law, you know, or in regulation.
Mark Osherow There really aren’t any in the common law, that’s the thing. So I don’t know if I’d call it an exception, which I did, but it’s really not an exception. It’s a special category of employees. I mean, it doesn’t necessarily only apply to high-level employees. It can apply to any category of employees. It’s a mechanism for specifying terms and conditions, but most employers under most employment relationships want to keep their options open, and they want to be able to terminate employees at any time for any reason. I mean, certain employers, large employers, have reviews for their employees and various other things, and they generally just don’t terminate people without, you know, procedures in place that they get evaluated every so often. But in general, an employee can be terminated absent an employment agreement for any reason, at any time, any legitimate reason. So there are times when an employee and an employer want to have a set forth, specifically set forth, relationship to solidify the terms, especially for highly compensated or specialized employees: research and development employees; shareholders who are also employees of a company sometimes fall into that category; and others. But those are the ones that come to my mind right now.
Mike Whelan Yeah, I mean, these are foundational questions, but I think they’re useful for the big picture purpose we’re going to get to, which is what are these things for, right? When are we going to see these things and what’s the competitive environment in which we’ll see them? And I’m thinking, Engaging in Other Employment (2.07) has you making a choice between, you can’t work for somebody else or you can. I’m assuming with these higher-level contracts when that is the case or if it’s, you know, a celebrity, you know somebody who’s using their celebrity for the purpose of the company. You really want to be specific about what is in and what’s out. Presumably this kind of employee has value outside their butt in a seat in front of the keyboard. How do you think about this other employment section, especially when you’re dealing with people who the “butt in seat” is not the only source of their value?
Mark Osherow Well, you know, that’s a very interesting thing, because in today’s environment, a lot of employees come in with other…how shall I put it…entanglements. They have startup companies. They’re involved in some type of technology. If they’re in the engineering end, they may have actually been involved in building a platform or websites or developing some kind of intellectual property or whatever it might be, and make any and all different types of things. It could be, you know, something in cooking. It could be any kind of technology. So, you know, a lot of employees are coming in with these types of histories where they’ve already created or are in the process of creating, value with some type of technology or design that they’ve come up with. So those employees often want to protect that information. On the other hand, an employee comes in and spending half their time on their personal stuff and half their time on the business stuff and it comes to be a problem, especially if they’re highly compensated. So those are the types of things that really need to be delineated carefully. What’s the scope of the employment? How much time is going to be devoted to it? Is all of the intellectual property developed during the relationship owned by the employer, or is there some portion of it to which the employee has a right? Are there disclosure obligations? Will the employer consent to allowing the employee to be involved in other aspects of what they do outside of the employment relationship, specifically if it relates to what the employer does on some level. These can be complicated issues, and depending on the relationship, those concepts should be carefully specified in a contract.
Mike Whelan Yeah. Relatedly, I’m jumping down to 3.03, where it talks about overtime compensation and you know, there’s federal rules for overtime and they are state rules and especially with some of these roles that you’re talking about, where they’re engineers in this environment, where people are in different states, presumably we’re putting in overtime compensation rules because it’s just easier than trying to guess what different states and federal rules are. What kind of specificity should we have in 3.03?
Mark Osherow Well, if the person is a professional or a high level manager, those types of considerations probably don’t apply. You know, so the reason that’s in this is it’s a consideration because you may have—and high-level, highly compensated individuals often it doesn’t apply to—but, you know, you may have somebody who’s coming in for a job that I just mentioned. They could be a younger employee where they’ve, you know, they’re not that far out of college, but they’ve already worked on a startup. And they graduated from engineering school and they’re a computer engineer and they get hired into a significant job that has potential, but they’re also working on stuff outside. So this may be a consideration in those types of situations. There are—I don’t want to get too into it, because there are lots of exemptions for overtime and they’re not likely to apply in this context, but they might. So we have it there.
Mike Whelan Yeah. Speaking of 3.07, does a thing that’s not always true, too, which is that there’s a training period in a job that might have different compensation. How do you think about 3.07 and the idea of compensation during that training period?
Mark Osherow Well, I think it’s important because there’s two issues here. When you’re dealing with an employee who is being trained by a company and learning the technology for the business, it’s often important to be able to later protect that information. And so if the person is compensated and the contract actually refers to that time period and they’re being compensated at their full rate or a lower rate, it specifies what they’re going to be doing. You have a better argument for enforcement, for specialized training, if it really is specialized training. You know, sometimes employers do try to claim something is in specialized training where it really isn’t. But often training can be specialized as well in some situations. So it’s a good idea for employers who specialize to indicate the compensation for that specialized training in their contracts. It’s a consideration. There are reasons to do it and not to do it, depending on the relationship.
Mike Whelan Yeah, and you had mentioned this a bit before, but I want you to dig into it a little bit. In Article 6, it talks about the property rights of the parties. And if somebody in this work, especially if they’ve got entanglements elsewhere, they’re coming up with ideas. They’re creating product. What do you think about the inventions, the patents, the licenses, just the ownership rights of people who are engaged in work like this?
Mark Osherow Well, it’s a problematic area. And usually it’s an area where, if the individual is not doing—if their involvement elsewhere is not…doesn’t really overlap with what the employer has them doing, it’s not going to be as big of a problem. But there are situations where it seemingly doesn’t overlap, where it really does. And then you run into the issue of something called work for hire. So you hire somebody, you own their work while they’re working for you. So there are situations where that can be a major problem, and it’s an area where contracts should, for these types of engineering and other employees that have this special knowledge where the contract needs to carefully set forth these issues so that later on, when the individual leaves, there’s a clear delineation about who owns what. The only issue is this, you know, you may want the person to continue what they’re doing. It may be something great and they have other value to the employer that this individual, even though they’re doing something unrelated, is involved in something else, you know.
Mike Whelan Yeah, I’m thinking about my situation. You know, when I do work with other clients, for example, it creates—it increases my public profile, which also inures to the benefit of all my other clients, right?
Mark Osherow There you go, that’s a perfect example. So I mean, I wasn’t thinking of an example and I’m glad you did, because that’s a great example where it’s—you want to manage that kind of thing in the employment relationship, and that’s not easy to do. I mean, a lot of employment contracts kind of make…they kind of discuss it, but they never really set it forth in detail, or enough detail. I always tell employees coming in, it’s better to be honest about what you’re doing and get an exemption under your contract before you start.
Mike Whelan Well, jumping down to the noncompete, I will say this—let me show it to you guys real quick—but this is a whole area, right? I’ve seen plenty of webinars on how to deal with noncompetes. And so maybe to focus on this specific document, you could give us some sort of general principles for dealing with non-competition. And do you think this document handles it well?
Mark Osherow Well, that’s a good question. I think—I didn’t provide this document to really say, this is the best noncompete that’s ever been written. I provided it to give an example. So this is what I do want to say about noncompetes: Employers like to make really strong non-compete agreements. In general, it’s not always in their best interest to have the strongest non-compete agreement you can get, because a, it pays to be fair and reasonable a lot of the time and b, courts won’t necessarily enforce something that’s overreaching. And you really want to have something that you can enforce, that’s reasonable, and avoid litigation if you can help it. You don’t want to have a noncompete that so restricts an employee that they can’t make a living in what they’ve been doing their whole life. You may enforce it, but you know, at the end of the day, are you really getting something that you want? The other issue with noncompetes that comes up a lot is, mostly noncompetes are enforced over trade secrets or confidential business information. Those things are not necessarily easiest to demonstrate. And you also have to show that you’re enforcing it against that type of information, because of what’s known as a legitimate business interest. And so the employer goes off and is doing a new job, and in theory, they’re competing against you, but you can’t really show that what they’re doing is affecting a legitimate business interest of your company. So you don’t want to make things so difficult that it’s very difficult to prove those types of aspects when they arise. You want to narrowly define what a legitimate business interest is in the context of trade secrets and confidential business information that they can use that they could have taken from the employer. You’d want to make it so broad that it becomes worthless.
Mike Whelan Got it. Well, let’s jump down to Article 8 and it talks about the termination. And obviously, we’ve created a term, we’ve created what’s going to happen from one side and the other side during this term, and as long as presumably that’s happening, everything’s cool. But 8.01 introduces the idea of an employer terminating for cause. What do you think about 8.01 and principles—
Mark Osherow —I don’t really like the way this is written at all. Usually, you want to give some kind of notice and an opportunity here, not just, you haven’t performed and this is what we’re going to do is terminate you. Also, there are all sorts of reasons an employer can terminate for cause, in addition to neglecting their duties. They can—there can be criminal reasons, there could be financial reasons such as—even a bankruptcy, if they’re in a financial field, for instance. There are lots of things that can happen that might constitute a basis for termination for cause. So some of them may be curable and some of them might not be. So I don’t really like this clause, but it is the one that was in this generic document. If anyone ever wants to see some that I’ve used or litigated, I’d be happy to share them with them in the future. So, you know, I wasn’t necessarily trying to give the best example, but this was the one in this generic document, so I thought it was worth talking about.
Mike Whelan Yeah it seems like they’re sort of trying to have their cake and eat it too, by saying this is a, you know, an employee employment agreement, but also we could basically fire you for anything that we want to. So it almost gets to the at-will, employment relationship. Well, you know what keeps coming up in these contracts that we’re dealing with, and I know this is a popular subject right now and the Supreme Court even is dealing with, it is the arbitration clause. This is the shortest arbitration clause I’ve ever seen. What do you think about the idea of arbitration in an agreement like this?
Mark Osherow Well, first of all, I would say this: I’m not a huge fan of arbitration, because you go into court, you pay your fee. It’s $402 or $410 mostly in Florida, whatever it is, in whatever court you’re in. You’re in arbitration, arbitrators get paid by the hour. You have to pay the arbitration fee to the triple A, triple A charges a fee based upon the amount involved in the action. So if it’s a highly compensated individual, it can be a fairly significant fee, tens of thousands of dollars, in some instances. So, you know, arbitration, I’m not a big fan in most situations, but if you’re going to elect arbitration, this is a terrible clause. It doesn’t say who’s responsible for paying for the arbitrators, it doesn’t talk about what’s within the scope of the arbitration, how the fees are going to be bought, what are the costs that are going to be borne, how many arbitrators they’re going to be—anything about the manner of doing the arbitration or other considerations about getting into arbitration, [like] time for getting into it, whether there’s going to be discovery, how long things are going to take. I mean, there’s so many different things. I mean, I’ve talked on that and I’ve given seminars on arbitration clauses and this is a rather weak one, I would say.
Mike Whelan Yeah, in an employment context in which courts are going to want to protect the employee anyway, Now let’s put this tiny arbitration clause that there’s hardly, you know, any language at the top that tells you, by the way, you’re signing away, you know, pretty fundamental American rights that, you know, we fought wars over. So this is a pretty wishy washy approach. Well, take me down to this last section. The entire agreement, 9.02. It says that it supersedes any and all other agreements, oral or in writing. Pretty common in this kind of agreement. What do you think of this section to wrap it up?
Mark Osherow I think it’s important to always have a provision like that, but I also think it’s important to memorialize. And for that reason, it’s important to memorialize. That’s why I like this one, it’s important to memorialize changes, you know, and if you do an extension of an agreement, it should…I recently saw a case where, you know, the agreement was extended and the original term…well, actually, that’s an ongoing case. I really shouldn’t talk about it. But what I will say is this: you got to be really careful about the term, extending in terms of agreements, making sure when the term is extended, that the original terms in their totality are incorporated, if that’s your intention, including any terms that that would have only applied to the original term and to be careful to memorialize those changes because employers and employees get comfortable with each other over time. They have a great relationship, things are moving more smoothly, and then they don’t memorialize things. It could be the third renewal or the fourth renewal, but I’ve seen this time and time again and then they end up in this never-never land of not having a contract. Are they under a new term? Is it an extension? Is it employment at will? Is it a month-to- month contract? There’s all different concerns.
Mike Whelan Yeah, and as we wrap this up, I’m thinking big picture and this moment that you referenced before, this moment in which, you know, people are resigning and companies are trying to figure out how to keep people. And it sounds like, from what you’re saying, these kinds of documents are relatively rare and reserved for certain kinds of people because they’re in high demand or because the hire has a particularly big impact. What do you think we’re going to see now in terms of, will we see a proliferation of these agreements? Will we see a whole bunch of them because now employees are more empowered and they demand more rights. Will we see less of them? Are they going to get better? What do you think is the ecosystem for agreements like this?
Mark Osherow I think that there is definitely an environment where employees are feeling more empowered. I mean, what are they calling it? The Great Resignation. And there’s more jobs available than people to fill them, especially skilled jobs. So I think a lot of people with skills are feeling more empowered, and I’m seeing more employment agreements for sure. Not necessarily super high employees because those people are going to always have employment contracts, but more on the line, you know, not just necessarily hourly workers, but skilled college-educated workers who are mid-level employees are more likely to have employment agreements to protect their employment interests.
Mike Whelan Yeah, it’s an interesting moment and I’m glad that the increase in agreements gives you more work to do. So for people who want to learn more about what you do, your firm, the litigation that you guys do, what’s the best way to reach out to you, Mark?
Mark Osherow My firm is Osherow, PLLC. I have a partner, her name is Kynyetta Alexander and our website is Osherow PLLC dot com. My email is Mark at Osherow PLLC dot com. And our phone number is five six one two five seven zero eight eight zero. And I’d love to discuss these issues and any others pertaining to drafting contracts.
Mike Whelan Well, we’ll make sure that this information is included with the blog post over at Law Insider dot com slash resources. And also, if you want to be a guest on The Contract Teardown show, just email us, we’re at community at Law Insider dot com. We’d love to have you on. Mark, thank you again. We’ll see you guys next time.
Mark Osherow It was a lot of fun to do. Thank you.
Mike Whelan Thank you.