Using Employment Contracts vs At-Will Employment Agreements
The terms “employment contract” and “at-will employment agreement” are often used interchangeably; however, they are not the same legal document. In California, employment is considered at-will, meaning the employer or employee can end the employment relationship at any time, with or without notice, and for no reason or any reason, so long as the employer’s reason is not unlawful. However, an employment contract alters this policy and limits the employer’s right to fire the employee, usually by detailing the grounds for termination or setting a term of employment (for example, one or two years).
Some employers require employees to sign a written agreement stating that they are employed at-will. This document is not a contract, but rather is known as an “at-will employment agreement.” Employers might ask employees to sign an offer letter, handbook acknowledgment, or other document agreeing to at-will employment, for example. These documents do not limit the employer’s right to fire the employee. Instead, they affirm the employer’s general right to fire at will.
At-will employment agreements are common in California; whereas, employment contracts are less common. An employer contemplating the use of an employment contract may want to consider the following advantages and disadvantages:
Advantages of Using Contracts
Employment contracts can be very useful if you want control over the employee’s ability to leave your business. For example, if finding or training a replacement will be very costly or time-consuming for your company, you might want a written contract. It can lock the employee into a specific term (for example, two years) or require the employee to give you enough notice to find and train a suitable replacement (for example, 90 days’ notice). While you can’t force someone to keep working for you, an employee is likely to comply with the agreement’s terms if there’s a penalty for not doing so.
Employment contracts might also make sense if the employee will be learning confidential and sensitive information about your business. You can insert confidentiality clauses that prevent the employee from disclosing the information or using it for personal gain.
Sometimes, you can use an employment contract to entice a highly skilled candidate to come work for you instead of the competition. By promising the individual job security and beneficial terms in an employment contract, you can “sweeten the deal.”
An employment contract is not a one-way street. The contract binds both you and the employee, so it limits your flexibility. This may pose a problem if you later decide that you don’t like the contract terms or the needs of your business change. In those circumstances, if you want to change the contract or terminate it early, you’ll have to renegotiate it — and there’s no guarantee the employee will agree to what you want.
For example, if you decide you want to end a two-year contract after six months because you don’t really need the employee after all, you can’t simply terminate the employee — this would be a breach of contract. Similarly, if the contract promises the employee health benefits, you can’t later stop paying for these health benefits as a way to save money. The only way to change the terms of the contract is to renegotiate them. This can be done, but it’s time-consuming and requires the employee’s consent.
We hope that you will find this Article helpful in your business. Please feel free to forward this Article on to anyone that you think may benefit from this information. As always, if you have employees and are interested in how BPE Law Group can help you with your employment-related matters, call us at (916) 966-2260 or email Elizabeth Arias at firstname.lastname@example.org.
This article is not intended to be legal advice, and should not be taken as legal advice. Every case requires review of specific facts and history, and a formal agreement for service.