Right upon setting up everything you’re going to generate employment from your company, that really wonderful sign that your company embark on the success ride. But wait before stepping ahead you’re told to maintain the compliances, necessarily about various contracts before have a relationship in place with any third person and same you’re doing right here. You’re inviting the candidates to join the company and pursue employment. Don’t you think you need the contract agreement memoranda with the employees you’re going to have onboard? Obviously, having an employment contract is an inevitable part of company compliances to significantly minimize the future deviation between employer and employee.
Drafting down a clear, bold, honest and frank employment is crucial to layout the employer and employees clear obligation, conditions and opportunities for both parties that make both of them heedful about various things that are important to run a successful and mutual satisfied relationship. A employment contract is not just an agreement but often times is also servers a very essential enticing for the experienced and valuable employees if the employment agreement policies are crafted with work at value-based. Here right below you get the things to hint for what a perfect employment agreement can be formed.
Well negotiating the favorable employment options with an agreement contract can be challenging for whom who are very first time over the ground and they need the know the most eccentric key points from the combined perspective of employer and employee. Here we’ll discuss what are those key points must have clauses about in an employment contract.
Name of the Candidate & Company – Describing briefly about the agreement
For example –
Harshit (Name of Employee) son of Mr. RB Lal (Name of father mentioned in the document) residence of ‘MENTION PERMANENT ADDRESS’ has been invited to join the company XYZ (Company Name) and Mr. Harshit showed the intention the join the SPECIFIC POSITION designation and signifies the willingness to put the job assignments with the following terms and condition of the relationship between Harshit and XYZ (NAME AND POSITION OF THE EMPLOYER) who stand behalf of the company.
Date of Enforcement
Always prominently add the date of service joining, date and specific time of agreement and location details where the contract singed and date of contract enforceability.
Job Designation
One of the most obvious factors that inevitable must not be left uncovered in the employment agreement. This section focuses on such factor that all about the job and its responsibilities details. In job designation you must essentially add watertight information about various designated roles, responsibilities, obligation and employment related various terms on following layers.
- What’s the job title?
- Describe that what should be the position vision orientation and what its personnel interaction policies that appointed on the similar positions with similar goals or involvement in communities?
- What are the exclusive rights availed concerned to that job positions such as its subordinates details, commanding, and decision making powers.
- What are the job responsibilities and its accountabilities? Detail the field it going to manage and up to what extend the position is responsible.
- What are the job embellishment, special authority and scope?
- How much and how often you offer the leaves such as vocational leave and what about the medical leave which is their civilian right? You must specify how often such leaves can be granted per year. One thing is notable that is vocations that you offer with full pay to the employees. Are they accrue-able for the post year in case not used for in a year?
- What are the job working hours, overtimes and holiday provisions? Most of the companies typically asked for 8 hours job operation daily and specified other guidelines regarding overtime management that an employee may be asked for overtime as require by the project. You should also add office operation hours for example opening time in the morning and closing time. Companies also describe about the holidays and weekend operation pattern information. [Note such information is the part of employee handbook or employment policies; if you’re not handling the handbook, then information should be mention in addendum of agreement hereto.]
- What are the job working location and can it be relocate if so what should be those circumstances and terms for such occurrence. For example if an employee relocated or may be sent abroad what may be that condition and in such conditions, a employees fairly should be treated with relocation package like increment in salaries and expenses or amenities provided such as car for transportation, flat for living etc.
- Reimbursement for the amenities: You must especially mention either you’re providing or not when you supply the amenities such a fuel imbursement for the car or bike you provided (even when the individual using own assets for the work) and cellular phone bill payment should be encumberment.
- Can the employer modify the responsibilities and job roles or delegated other roles, if so what may that be condition and is there may be prior notification requires notifying the employee about the change.
- What can be the specific circumstances that may lead to an employee promotion or demotion? Add up sufficient information about the promotion for an employee such reaching a milestone, or clearing the certain no of goals or clearing the specific successful employment tenure. A demotion in just lowering the someone rank, alleviating the salary and authority and the circumstances may include the not able to hold the job responsibilities, inadequate of specific skills or knowledge, unable to pace with the change and sometimes also can take place cause of re-organization or management team.
- What is the service tenure or working life ‘At Will’ e.g., 5 years. Define how long the employment tenure terms and what may be happen next.
Well a employer and employee may have apart open and favorable discussion for each party on the various arrangement involve in the designation regarding position governance, education and training, liabilities and responsibilities, working location etc.
Salary & Bonus:
One, that is foremost key element of the employment agreement where the employees look at the first sight is the salary clauses. This is the section focus on wages related information under points discussed below.
- What base salary you’re offering to an employee and what are its premises – for better enticing, intuitively, a reasonable payment must be there to great enthusiast, motivation and productive work. You should at least offer competitive in the industry.
- What should be the salary increments and reduction circumstances? It’s obvious that its difficult to delivery sustain same base salary especially new company and company may occasionally, slightly and significant change can make in the salary upon many conditions arrival be it financially distress and healthy. You should some information in the section about that company may lay some reduction in base salary if financially suffering and, as fairly, it should also reward the employees with salary increments when financially performing well. When it comes to oversight of company performance impact on the wages – the negotiation should take place on at least other same level designated employees’ wages. Additionally, you must also mention the information the specific reward condition of salary increments and slacken which may with regard to the employee work performance, up reaching the certain milestone or scheduling time frame (e.g., typically companies increment the base salary half yearly or annually as specified in the contract especially accelerated in new hired with lower base salary).
- What’s the bonus structure? Another, important thing that indispensably perceive the satisfaction for the employees is all about bonus structure. You, as an employer should have written down the important clauses for the various bonus terms and guarantees. For example how much bonus you do offer and how frequently you do offer avail the bonus; typically many companies avail some bonus to their employees half yearly or annually or on the specific occasion arrival e.g., Bonus for Christmas or bonus of achievement. Here another sort of bonus you should about known as signing bonus that critically disseminated as incentive for the employees in employment contract — when a employment agreement breach down earlier from expectation mean either the service terminated for a cause or without any cause in earlier stage, a lump sum amount is paid to the employees in conditions. The signing bonus is lucrative from the perspective of employees.
- Do you allow Stock Appreciation Rights (SARs) to the employees which means when company performs outstanding in itself and the share price record in increases; employees or management team may have right to have bonus increments.
Exclusivity
Exclusivity is another most important term in employment contract. When this condition applied the concerned employees solely rights authorized by the employer that the one is exclusively obliged to work only for the respective company and he can’t serve rest companies in any form. The employee must have to devotee for full time to serve company exclusively to the company along with the candidate in signing into the contract. However, the employee is allowed to work part time anywhere rest of the devotee time only in distinct industry or which are out of the competition to the referred company.
Conditions for the Termination:
Another elementary clause of employment agreement that must to bring in the employee attention through the contract is about the terms of termination of the service. Well, an employer is restricted to suspend someone service without any cause and if they want to hold such right the employer is obligatory to make perception to the employees through the contract consent that the boss is powered to make suspension on its own will. In this key point you ought to add the points upon the violation of these points the service can incur to suspend. Generally, there might the following reason for firing someone service.
- Caught up in the corruption, theft, falsification, or fraud either by misappropriation of fund or powers.
- Found guilty in any offence allegation.
- Breaching the corporate cultural rules – if referred person discriminate while holding managerial rights; breaching ethic value of the corporate or moral turpitude – abusing, exploiting or harassing someone.
- Any FIR (First Information Report) or case filing by the police against the referred person.
- Violation of rules and regulation of the corporate or breaching the employment contract terms.
Incentive Stock Options (ISO) & other options Terms
If you’re proposing the incentive options to the employees make sure you add the specific terms and conditions in the agreement about the various incentives options.
You may not understand what are ISO and other incentives options may be offered to the employees and what ways? When you hire very important employees for your company, more specifically executive level officer and director, a pro company often provide incentives diluting exclusive specific piece or percentile equity ownership of the company and buying stock options at reasonable exercise price which arrives subtracting the bargaining element.
Means, when an employee willing to join the company he or she provided some special enticing options by owning a piece stock of the company under specific terms and condition. The employee is optioned to provide the company stock at reasonable exercise prices off the market price subtracting the bargaining elementary prices. Sometime company also grant the piece of stock vested under specific condition which may underlying such as no or low salary paid for specific time or achievement especially when company starting up, or special dedicated time and diligence, or any condition an employer signifies.
Here the bargaining prices means the difference price value between market price of shares and the exercise price an employee being offered, for example if a employee gonna to grant 1000 shares at the price of $50 per share while the market price of that per share is $100, there is the bargaining element of (100 – 50 = 50) $50 per share and total bargaining element he preserve (1000 x 50 = 50,000) $50,000 at exercise payable. Its huge beneficial from the view of employee.
Companies also offer non-qualified stock options (NSO) that are remarkable offered to the outsider directors where that are comparatively less advantages for employees especially in terms of taxation.
Okay, when you’re offering such options make sure you negotiate the conditions encompassed on the following points..
- What piece of equity (if you avail) you dilute; would you prefer to exercise a percentage from aggregate granted value of equity and rest restricted for future until something isn’t accomplished by the employee or whole of the value you want to grant from day one?
- What type of Stock options you’re availing either Non-qualified Stock Options (NSO) as detailed above or Incentives Stock Options (ISO).
- If offering ISO or NSO, are you going to prefer vesting options as following —
What are the vesting schedule rules; what’s the vesting time period for complete allocated? Typically companies use 4-5 years timeframe to fully vest the shares stock to the employees ISO plan.
- Is there any vesting cliff period specified? Which means if you specified 6 months vesting cliff, it will require at least 6 months to be employed for the employee to grant the any vesting.
- Detail any accelerated vesting information, means what are the specific circumstances when the vesting already occur before the cliff period or vesting schedule accomplished such as if any third party company acquires the 50% shares of this company, may be in such scenario the vesting might be accelerated or if the service terminated in earlier stage with or without cause, the vesting can be accelerated.
- What are the exercise period and exercise price gonna be upon vesting? Exercise price means the price to own the vesting of shares as described above and exercise period is the specific timeframe to excise the vesting upon acceleration.
- If the termination of the employees is caused earlier for the positive reasons like conviction or violation of agreement; what would be special condition upon the event occurrence? What will be your buyback period specified for rest non-vested stocks? If the vested stocks is granted restricted stocks in ISO what gonna to be exercised period for an employee pay off the exercise amount for the vested share stock or would you like to terminate special clauses options or what if employee voluntarily resign the job.
Negotiating the liabilities Protection
Please note that employees prefer to minimize the job liabilities. An employee should be liable only proportional to the rights he holds. A experienced and well reputed employee especially you’re hiring the executives or directors; they generally question you about the liability protections –
Workers Liability Protection is generally covered by the Employer’s Liability Insurance as a part of Worker’s Compensation Insurance policies which does covers many sorts of employees injuries and issues the compensation, settlement, court fees, legal defense fees etc. Other things that are concerned related to the topic is indemnities securities for the employees losses caused by the company employment for example what are the company bylaws when it could not remain in the position to deliver the employment?
Benefits & Compensation:
Another major key issue comes here about the benefits and employment compensation that’s being offered from your service. These features from your company employment are like a windfall for the employees and any candidate employee head over on these issue at very first. Here I’m going to list down some of figurative common benefits and compensation that most of companies do offer to their employee.
- Maternity Benefits: A benefit for the women when they are pregnant which including leaves and reimbursement for mother and child.
- 401(k) — Retirement Plan: Plans upon retirement.
- Health Benefits (with spouse and children or other dependent): Compensation plans for health damage related issues such as burden of treatment expenses.
- Employees Life Insurance. Companies also offers life insurance plans for the individual employee by third party companies in which the periodic amount is paid by the company. Remarkably here, when Life Insurance protection is provided some other mentioned plan is laid off which covered by the insurance.
- Provident Fund: The fund issued when retirement occurs.
- Pension: Securities of regular payment after the retirement either to spouse in case the individual death.
- Bankruptcy or Disability. The compensation or regular payment securities even off the service. Important to add special clauses what should be happen at the event of disability?
- Contingency Benefits: The compensation provided at the time of crisis on the individual such as firing at home.
- Premature Death: The coverage for accidental death, generally compensation or regular payment issued to the spouse or depended.
- Equity (Discussed Above).
- Golden Parachute: Especially in merger-prone industries; the Golden Parachute covenant is often have in place part of employment contract. Specifically when a company hires the top level executive positions the contender demand the Golden Parachute agreement in which the clauses describes that company is tend to pay off the substantial amount to the employee in case the individual is fired or demoted from the position at the time of company merger or takeover by another company. The advocate of the Golden Parachute belief that it prevents the company from being merger and makes easy to hire and retain the company top executives.
Should your every employee be entitled to the all of the plans you chooses or may be vary from employee to employee? Whatever you offer add the regarding information in the contract.
The Secrecy Provisions
What would happen when somebody leak the very secret information about the company’s new invention? Well the confidential provision highlights the case event. With such clauses consent in the agreement make a employee prohibited from divulging the secret information of the company and if individual caught up doing the referred person will be subject to the damage made or prosecution. Another thing, that is to keep in mind when hiring an executive position, not to disclose or use (in some cases) previous employer confidential information.
Companies, especially hiring the director or high ranked position often have the separate confidential contract in place and also an invention subjected person asked to bound in this contract.
Well, information that can be publicly known without someone’s fault can’t be incurred to the employees confidential contract.
IP Assignment:
Who should be assigned the rights of intellectual property for the various things like when a person conceive a idea, devise a solution, invent something new, etc; for whom the rights should be assigned will it be the referred person or the company. Well a employer always have the provision that whatever an employee innovate the exclusive rights will be reserved by the company as from the perspective of company, the innovation is taken place under the environment were the necessary tools and utilities was delivered by the company and employee salaried for its work; well its fair enough!
Companies may have separate covenant about the copyright, trademark, patent, right assignments especially hiring at the scientific and expertise position and restrict them to use that information anywhere else even upon firing.
Company Representation & Contract Authority:
Companies often inline the important provision regarding the company representation and external authorities means when hiring the lower rank employees companies makes it clear the respective person does not represent the company official and there is only the employment relationship between the company and employee who has the restricted authorities. The contract underlines that either the individual has no right to enter into any contract behalf of the company or if allowed then specifies up to what sort and extent of contracts and limitation he hold.
Arbitration
Many employment contract exclusively make the bold consent about how should a dispute be deal when arise between the employee and employer. An employer specially emphasize that such cases must not head to the court instead the case should be brought to the seniorities of HR first. What may be the bylaws of the company about the arbitration and dispute resolution policies that an employee would has to assent?
Addendum
A Great Employment agreement always has addendum portion which is referred to additional clauses and provision and attachments related to the handbook, written representation and warranties and other documents are send to the company. A addendum may also have scheduling, exhibit, and appendixes portion which is respectively referred to assignment and working events with respect to timeframe, the specific policies and bylaws of the company will require to be agreed upon for an employee when he takes a case to the court or clauses related to the lawsuit that are taken into account at the time of legal judgment and the special terms and conditions portion for every single service being offered to an employee.
There are some element mandated to be added in addendum.
- There is most important clauses always kept in Addendum that “the terms and condition of the employment on which an employee agreed upon may be changed anytime and discretionary to the Company Human Resource Executives, however company would put all efforts to make you notify about the change.” [Appendix section hereto]
- The employee is obligatory to issue a prior notification to the company from the date of resign. Typically company asks 15 days. [Scheduling or Appendix section hereto]
- If this is the amendment of any previously held agreement between you both. You should have term on this agreement that this agreement from the date [DATE OF ENFORCEBLITY] supersedes any prior agreement held between XYZ and ABC, however this agreement shall not affect any Arbitration, IP Agreement, and Confidential provisions that was underlined in SPECIFIC agreement. [You may add join the line with additional clauses if the contract does not subject to change anything specific predecessor.] [Appendix section hereto]
- If any of the terms of this contract found to be void of could not be enforceable to the laws then the else terms of this agreement shall be remain into effect and enforceable. If the entire agreement found to be invalid due to any cause then any predecessor and prior agreement made between the concerned parties shall be re-instead and enforceable back again, or if there is not prior agreement made the post agreement shall be held to form. [Exhibit section hereto]
Final Thoughts:
Well if we come to final thoughts, an employment contract is extremely important thing that must be crafted very carefully with caution that’s very important factor in the success factor of the company. However, the employment contract plenty of aspects is subject to the local laws and it’s important to have an attorney consultant who will guild for to mention other important thing while managing such sensuous for your company. Another thing that is most obvious to have thing arranged in contract with hierarchy – vital things put first, classified as nobody likes to have things mixed up, and legal manner; yes written with legal intentions.
