Contracts exist to help businesses and individuals set expectations for their professional relationships. Texas employment contracts are no different and are an important part of any small business.
When drafting an employment contract, Texas businesses must be careful. Not everything that a business owner may want to include is enforceable.
Therefore, having a basic understanding of Texas employment contract law is crucial, especially if drafting an employment agreement yourself.
Texas Employment Agreements: Overview
Texas, like most states in the U.S., is an “at-will” employment state.
With at-will employment, the employee or employer may terminate the business relationship without notice at any time. They may do so for no reason or any reason not prohibited by law (for example, it would be illegal to fire someone for a discriminatory reason). When there is an employment agreement, however, the parties will instead be bound by the terms they agree to.
Many businesses use some sort of employment agreement when hiring a new employee. Doing so ultimately protects both parties by clearly setting the ground rules for employment. With that in mind, here are some common pitfalls small business owners may make in their contracts and how to avoid them.
Overly Broad Non-Competition Clauses
This is perhaps the most significant mistake employers make with respect to their employment agreements. Particularly in competitive industries, business owners often want to restrict their employees’ ability to work for competitors. However, Texas law places limitations on these provisions.
Specifically, an agreement not to compete must be reasonable with respect to
- The time it remains in effect after the termination of employment;
- The geographic area (like a state or a county) to which the non-compete applies; and
- The scope of the activity covered by the non-compete.
If a contract fails to be reasonable in any of these ways, a court may find it unenforceable. This may be a problem for businesses that use the same non-competition clause or agreement for all their employees. For example, a non-compete probably could not restrict a low-level sales rep the same way it could a co-owner or high-level executive.
Accordingly, small businesses are better off providing a fair and balanced non-compete that a court will uphold. Business attorneys familiar with Texas employment contract law can help you draft an appropriate non-compete to protect your business.
Non-Compete vs. Non-Solicitation
Non-compete clauses often include a “non-solicitation clause.” While non-competes cover an employee’s competition with the business, non-solicitation clauses protect a business’s existing clients and employees.
While not always strictly necessary, non-solicitation agreements are useful in industries where a former employee may try to “poach” clients or coworkers from their former employer.
Ambiguous Conditions for Termination
Clarifying the events or conduct for which the business may fire someone is a significant part of a well-drafted contract. Not only does it make clear to the employee what kind of conduct they should avoid, it can protect your business if an employee challenges their termination.
Texas businesses have many options when it comes to termination clauses and what they include. If you’re unsure how to draft an employment termination clause, our Texas business law attorneys can help.
Unclear Descriptions of Duties
A common mistake that business owners make is not including a sufficient job description in their Texas employment contract. While it may seem unnecessary if both you and your future employee understand what will be expected of them, clearly defining their duties can avoid headaches later on.
In addition, being absolutely clear about the scope of an employee’s job can protect the business from liability later on. Under the doctrine of “respondeat superior,” courts may find an employer liable for the acts of their employees working within the scope of their employment. Whether respondeat superior applies depends on the specific facts of a given case; however, a clear job description in the employment agreement may make that determination easier if necessary.
Missing or Incomplete Confidentiality Clauses
When it comes to an employment agreement, Texas business owners may not always think to include a confidentiality clause. While not all businesses will need one, business owners should consider it if the employee will handle any sort of sensitive information.
Texas employment agreements with a confidentiality clause should be sure to address confidentiality both during and after employment. Employees may be clear on the expectation of confidentiality while employed but may not understand their responsibility when they leave.
Texas employment agreements should therefore include information about how long the confidentiality will last after an employee leaves. If you’re concerned about your employees handling sensitive information, we can help you draft a strong confidentiality agreement.
Minimal Compensation and Benefits Information
In the context of an employment contract, Texas businesses have the upper hand when it comes to bargaining power. As a result, employers can take advantage of opportunities to make new employees more comfortable with their position within the company. One such opportunity is clearly defining any offered compensation and benefits in the employment agreement.
Doing so allows the business to explicitly establish the base salary or wage, insurance options, and how the business handles holidays and vacation time. As an added bonus, this may also allow a business to protect itself from challenges by an employee about what the company offers.
Unclear Drug Testing Policies
Not all employers require drug testing. But when they do, making that clear is important. Because Texas has a medical marijuana program, employees may be under the impression that their use of medical marijuana is shielded from any employer drug test.
However, this is not necessarily the case. Explaining drug testing policies in the employment agreement can help businesses avoid training an employee who may take issue with those policies.
Ready to Draft Your Texas Employment Contract?
At Massingill, we believe in making sure our clients understand the legal answers to their questions, no matter how complex.