The new year is here, and if one of your resolutions for 2020 as an employer/ small business owner is to get your HR in order, this post is for you.
Based on my experience acting for a wide range of employers, both small and large, here are the top three (3) mistakes I see employers making in relation to employment contracts:
1. Not having an employment contract.
“But, I am a small business, I only have a couple of employees, I don’t really need an employment contract”. I hear this often, and my response is, you don’t NEED one (i.e. it is not legally required), but you absolutely SHOULD have one. An employment contract does not need to be a 20-page document spelling out all the minutiae of the employment relationship. However, a brief contract or letter of offer that, at minimum, addresses the key terms of the relationship, including the employee’s termination entitlements, is key. As an employer you never know when you may have hired your next 20-year employee, and if you have, and you don’t have an employment agreement and later decide you need to let that employee go that is a costly mistake. The difference between having a simple employment contract with a termination clause and no employment contract, could mean the difference between owing your employee an eight-week termination package and a twenty-month termination package.
2. Having employees sign the employment contract after they start employment.
This is an unfortunate error, because the employer has realized the importance of having an employment contract, but, if they employee doesn’t sign the contract until after they start work for you, it could render the entire employment agreement unenforceable (i.e. invalid). This is regrettable because it means that the employer has invested time, effort and potentially money to put an agreement in place, and may not be able to rely upon it when they need to, i.e. when terminating an employee.
3. Updating employment agreements without providing any benefit to the employee.
This mistake is also very unfortunate because it could, as with #2 above, render the entire employment agreement unenforceable. Where you are updating an existing employee’s employment agreement, whether it be because of a promotion, or to reflect changes in the law, in order for that agreement to be enforceable, typically the employee must receive some benefit in exchange for their signature on the new agreement. There are simple ways to achieve this, i.e. a modest signing bonus, but often employers aren’t aware of the requirement at all, and simply have the employee sign the new agreement, which risks the employer being unable to rely on the agreement down the road.
While these are not the only employment contract pitfalls that employers make, they are certainly the most common, and, if as an employer you can avoid them, you have taken at least three steps in the right direction.