Employment Contracts: What the Employer and Employee Should be Considering


It remains astonishing what some employers are able to get away with when they have decided an employee is no longer required. Lots of companies try to attract employees with high salaries, but offer only minimum statutory notice of termination and demand restrictive non-competition clauses that would prohibit re-employment in the industry for at least 12 months. Surprisingly, Many inexperienced employees jump at the salary without considering the precarious situation they will be in if they are fired with essentially no notice. Looking for work is tough enough when you have no pay coming in. It is worse if you are not entitled to search for a job in the field in which you have been working. You could be in serious trouble as long as the restriction on going to a competitor can be enforced.

What is fair or reasonable about offering an employee termination pay of only one week for every year of completed service while insisting upon a non-competition agreement that runs for 52 weeks? This would mean that even after 5 years on the job, the best notice an employee would get at termination would be 5 weeks. But, after the notice ran out the restriction from working in the same industry would go on for 47 more weeks. That is a big price to pay when the decision to terminate is made entirely by the employer. Instead, if they paid you to stay at home, you might feel better. Maybe if the employee initiated the leaving, she might accept as more reasonable a competition restriction.

So what can the employee do at the moment of offer? She can ask for better notice and a lower non-compete. She can argue nothing should apply in the first year of employment because the employee won’t know much or learn too much of competitive value. The employee can propose a restrictive period consistent with the notice period - a balancing of interests. If the employer won’t budge and the employee wants to take a risk, maybe she gets the refusal to budge in writing. Later if necessary, lawyers can argue the clause should not be enforceable because of power variance and the unwillingness of employer to negotiate.

Better, the restriction itself may be imprecise or vaguely describe the types of clients not to be solicited. Rather than clarify the contract, leave it badly drafted. Write a memo to file about your efforts to achieve fairness and wait. If bad drafting and short term employment go together and a firing occurs, you have some ammunition.

If you are the employer, stop trying to take advantage of employees. Write reasonable contract terms on which you are prepared to show some flexibility. Respect your employees by asking for reasonable restrictions that extend as the promise to give additional notice or pay in lieu increases. Recognize that acquiring an undertaking for a terminated employee not to compete is something to purchase. It does not come for free. It should not be a follow on. And if it is worth having, it is worth paying for.

Seen a different way, judges asked to enforce restrictions on an employee’s ability to secure a livelihood are not going to restrict people they think have been tricked, manipulated or treated unreasonably. The key to enforceability tis reasonable conduct.

The final resort of the employee who cannot persuade a potential employer to budge: don’t accept the job. That is the ultimate bargaining chip.