What is an Employment Agreement?

The employment agreement outlines the rules, rights and responsibilities for both the employer and the employee. In this article, we’ll be going through the legal aspects of what to include in an employment agreement and why, as well as what to look for before creating one.

What is in an employment agreement?

An employment agreement is crucial as it concretises the obligations that you require your employees to fulfil, as well as provides some degree of certainty with respect to your labour force. An employment agreement would typically cover matters such as:

• Remuneration
• Leave
• Working hours
• Responsibilities 
• Benefits 
• Non-Compete obligations
• Performance reviews
• Termination notice period

Understanding post-employment restrictions

One of the issues that would arise when hiring someone is if they have a post-employment restriction. Whether you’re hiring an employee with post-employment restrictions, or setting up an employee agreement to have post-employment restrictions, these are the most common items to include:

Non-Compete obligations 

These expressly restrict the employee from competing with their former employer. Such restrictions typically apply for a specific time (e.g. “1 year after leaving the company) and in a specific area (e.g. “within the markets in which the employer operates).

Non-Solicitation obligations 

These expressly restrict the employee from trying to convince (or in slightly more legalistic terminology, solicit) the former employer’s other employees, clients or suppliers to cease dealing with the former client.

Confidentiality obligations 

These restrict the employee from disclosing information that they obtain in the course of their employment with the former employer.

Startups can be so eager to hire new talent, that they overlook the pitfalls that may arise from hiring employees, who are subject to such post-employment restrictions. The risk here is that by hiring someone subject to such restrictions your company may end up being found liable for procuring a breach of such restrictions – even if your company has done so inadvertently.

In an ideal world, you would want proof (e.g. a copy of their old employment agreement) that your prospective employee is not subject to such restrictions. In a more practical/realistic world, your template employment agreements should include express representations from him/her that he/she is not subject to such post-employment restrictions.

Benefits of Employment Contracts

When drafted well, an employment contract can provide a variety of benefits to a company and its employees, including:

● Recognising the criticality of human assets

● Making it easier to attract top talent

● Creating positive first impressions

● Explaining roles and responsibilities

● Ensuring the employer gets the benefit of employee-generated IPR

● Enabling performance management of employees

● Delivering performance incentives

● Mitigating risk of employee claims

● Smoothing out bad hire departures

● Protecting employers from reputational risk.

Next steps

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.