Startup FAQ 8-9: Why use employment agreements?

Why do I need employment agreements? Can’t I trust my own employees?

Of course you should hire people you can trust. You may even enjoy a personal bond with your employees and treat them like friends and family. But the employment relationship is fundamentally a business deal. And business deals should be governed by written agreements.

Without a written agreement that says so, you might not be able to:
• own intellectual property rights in the employee’s work product;
• avoid paying unbargained-for benefits or wages;
• fire the employee when you want to; or
• prevent the employee from competing with you after they leave.

Again, written contracts bring clarity and predictability to business relationships. What kind of friend would be offended by that?

I’ve got a salesperson who’s working on commission. I don’t need to use an employment agreement with him do I?

Yes. Yes, you do. Perhaps especially with him. One point of contention in any sales commission relationship is the time at which the commission is earned? At signing? At closing? At payment? A contract can answer these questions.

If you do not pay your employees properly, they can sue you for back wages and benefits, and can often force you to pay their attorneys’ fees on the case! The only way to reduce this risk is to get the terms of the employment relationship in writing before the employee begins work, whatever those terms may be.

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