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Hiring Employees, Independent Contractors, and Third Party Providers

It can be easy - too easy - to move ahead with your working relationships without executing contractual agreements.  Please pause before you do so.  In the long term, working arrangements will serve your business best when you think them through and address them in writing.

Executing Employee and Other Work Agreements

As with all agreements, it is important to be clear and specific.  Think about as many applicable issues and concerns as necessary and appropriate to govern the relationship, support company culture, and establish your expectations regarding all parties’ rights and obligations.

In your agreements, please generally be sure to cover such essentials as naming the parties involved!  This may seem basic, but it is important to define for whom, or with whom, an employee or contractor works; the business or the business owner, or perhaps a holding company, affiliate, or subsidiary.  It is important to be clear in defining the parties to the relationship (and to carry out the relationship as defined).

Within your agreements, it is a good idea to explain any company or industry-specific terms.  Before engaging in any working relationship, think about executing an agreement that addresses not only the parties’ points of view, but the point of view of an intelligent third party (such as a judge) who may read your agreement without in-depth awareness of your industry.  It can be important to describe relevant concepts from the ground up in clear, complete sentences.

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Although not a complete list of working contract considerations, it can be helpful to think about:

  • Each party’s rights, responsibilities, and obligations (these are the heart of the agreement, and may be as distinct and extensive as necessary);
  • Any performance standards (consider subjective standards important to your business and its culture);
  • Compensation or commissions and any triggering events, formulas for calculating amounts due, or contingencies;
  • Any intellectual property, ownership, and confidentiality issues, including any relevant background rights (rights to ownership over assets or services brought into the relationship), and any licensing or transfer issues;
  • Any applicable control and decision-making issues;
  • Applicable dispute resolution considerations;
  • Applicable administrative procedure requirements;
  • The term of the contract and any opportunities for renewal;
  • Termination issues or applicable exit strategies;
  • Any required notice of termination;
  • Any severance pay; and
  • Post-termination issues such as confidentiality and non-disclosure, non-solicitation, and non-compete considerations.

If you do seek help from an attorney, thinking about the above before meeting can help to reduce the time and costs of associated legal work.

Make sure your expectations and provisions are reasonable and qualified under prevailing law.  For example, some states do not favor non-compete provisions, but may enforce them if they are not unreasonable.  Note that restrictive covenants such as non-competes must generally be treated as distinct contracts; their validity rests on exchanges of offer, acceptance, and consideration.  Your employee or independent contractor must generally receive a distinct offer and applicable consideration for, and be allowed to separately accept, such provisions, whether they are included within, or are separate from, other contracts.

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Additional Employee Considerations

If you are hiring employees, you may also execute an employer policy handbook.  If so, you will want to be aware of any expectations or obligations you create for yourself through your handbook.  Some businesses inadvertently create contracts for themselves through their handbooks.  Know your intentions, and ensure that your language is compatible.  To avoid incurring obligations through a handbook, it may help to solely outline generally applicable policies.  If necessary, consult a local attorney for help with this.

If you do have employees, you will likely undertake annual employee performance reviews.  It can be important to generally document everything pertinent to employee performance; all regular communications you have with employees throughout the year regarding work performance and company policy, communications that occur during the review process, etc.  It is generally best to be honest and constructive in your communications and reviews, both with praise and concerns.  The more information you provide employees, the better opportunity you afford them to do their best work, understand business needs, and contribute meaningfully to success and culture. 

As an employer, it is also generally important that you follow your own rules and policies.  To be respected both in the workplace and in the courtroom, if necessary, you must live out the standards and rules you establish for yourself.

Respecting employees and administrative issues are both important to the legal health of your business.

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Conclusion

Thoughtful employee and other working relationship agreements are integral to business health and value.  Written agreements generally serve all parties.  While some new business managers may imagine that formal agreements restrict business culture, the truth is that open discussion and well constructed written contracts support mutual respect and understanding, productivity, and constructive collaboration in the workplace.  They are also crucial in many situations, including but not limited to those concerning intellectual property and other valuable assets.  Even extremely casual business styles may exist harmoniously with healthy business administration.  Moreover, in the long run thoughtfully written agreements protect business interests, and can save a great deal of company time and money.