Like many things in life, business relationships are full of uncertainty. If you hire an employee, there is always the chance that he or she will quit or go to work for a competitor business. By the same token, from an employee’s standpoint, market conditions can always change and you may be forced to terminate the worker’s employment. Further, you may have expectations for how you want the work to be performed, and an employee may come in with expectations about how they wish to be managed.
To help clear up some of this confusion, companies often enter into employment contracts with their employees. However, as a business owner, you should be aware that the state is considered “employee friendly.” As business lawyers in California know and will advise you on, there are many restrictions on what can be contained in employment contracts.
Employment Contracts Overview
An employment contract is simply an agreement between an employer and an employee that establishes the rights and responsibilities of both the business and the employee. Typical terms of these agreements include a description of the duties required of the employee, compensation amounts and any benefits, and the duration of the employment, if applicable.
The contracts may also include non-disclosure agreements and/or non-compete agreements. A non-disclosure agreement prevents the employee from communicating to another person certain information obtained while working, such as a trade secret. An example would be the secret ingredient in a soda recipe for a beverage manufacturer. A non-compete agreement limits where an employee can work after the employment ends. An example would be preventing a mechanic from going to work at a competitor’s garage across town.
It is important to note that under California law, when an employment agreement is in place, an employee can only be terminated for willful breach or habitual neglect of the duties set out in the contract.
California Restrictions on Employment Contracts
Now, the state has fairly strict regulations for employment contracts, which a contract lawyer in California could help you navigate. Generally speaking, non-compete agreements are considered void. This means that you typically cannot prevent an employee from going to work for a competitor business.
Another term that is unenforceable in employment contracts is any requirement that an employee waive his or her right to a jury trial as part of a legal dispute with the employer. Further, with a few exceptions, arbitration agreements are also considered unenforceable.
Finally, so long as the employee lives and works in California, there cannot be a contract clause requiring that disputes arising from the contract be tried in another state. Employers often include these terms with the expectation that the other state will be more employer-friendly.
Employment Without a Contract
In cases where there is no employment contract, the employment is considered “at will”. This means that the worker can be terminated at any time for any legal reason. Unlawful reasons for termination include being fired based on an employee’s pregnancy, disability, race, gender, age, religion, or sexual orientation.