Employment

Agreement
Fundamentals

Written by

Diana
Isyanova
1
Employment Agreement Fundamentals
GO TO TABLE OF CONTENTS

Introduction
///

Employment contracts have earned

their place in many professional
and workplace settings. But are
they necessary? And what should
they include? Do they really protect
employers or employees? Since the
employer is typically the drafting
party, are employment contracts
even fair? These and many other
questions may come to mind as that
contractual document slides across
the desk.
Imagine this scenario. An entrepreneur with a rapidly growing business decides
to hire her first employee, an entry-level assistant. This would be an exciting
milestone for any businessperson! Now, that assistant, who will (of course) be
amazingly skilled and extremely helpful in growing the entrepreneur’s business,
becomes a primary objective. So, the search for that talented, first team member
begins. Once the business owner has found a strong prospect, she will be eager to
start assigning tasks and responsibilities and to teach all the need-to-know to do
the job well.

But wait. That astute entrepreneur already knows that training this stranger
means sharing proprietary business information and perhaps clients’ information
too. She may have to provide the new hire access to account information, the
business credit card account, or even the cash.

That’s when the fear settles in.

2
Employment Agreement Fundamentals
INTRODUCTION (CONTINUED)
///
She may begin wondering if she’s made the
right choice, since she’s already gotten used to
doing everything herself. Our entrepreneur will
then find a lawyer to advise her on her duties,
responsibilities, and most importantly her potential
liabilities relative to the new hire. The lawyer will
also help her find ways to memorialize terms of
engagement because, let's face it, as exciting as
labor law is (not), there's just too much to learn!
An experienced employment attorney has this
knowledge and can guide the employer-to-be
through the labyrinth of labor law. Together, they
will draft complete and enforceable documents,
which will secure the employer’s organization,
future, and peace of mind.
As with all other private contracts, employment
agreements must be drafted to meet the specific
needs of each employer and industry. For that
reason, employment agreements can differ
in length, structure, detail, and even tone! For
instance, they might range as widely as a simple
letter of employment acceptance to one of those
GO TO TABLE OF CONTENTS
corporate agreements consisting of page-long
clauses, written in small font, and occasionally
separated by roman numerals.
Still, there are some common approaches by
which a drafter discovers the must-have provisions
for employer and employee protection required
by law. They must also weed-out those extraneous
clauses, prompted more by both parties’ fears
than necessity.
Because employment agreements are typically
drafted by a hiring organization, this e-book
will consider the issue from the employer’s
perspective. It will also briefly address various
subtypes of employment agreements, including
commonalities and distinctions. Finally, it will also
lay out five must-have clauses that employers and
drafters should include as useful to both parties.
Sadly, we cannot cover everything here, so we
will address the differences between contracts for
employees versus independent contractors in a
future e-book.
3
Table of Contents
///
1. Introduction 2

2. Does Every Employer Need an Employment Agreement? 5

Setting Clear Expectations5
Ease of Enforcement
Providing Protection
Confidentiality Clauses

3. Common Types of Employment Agreements 7

Oral Employment Agreements
Written Employment Agreements
At-will Employment Agreements
Fixed-Term Agreements
Casual Employment Agreements

4. Five Clauses That Every Employment Agreement Should Have 9

Position and Job Responsibilities
Hourly or Exempt
Probationary Period
Compensation
Termination Terms

5. Three Questions for Making Employment Agreement Bullet-Proof 11

Question 1: Is It Written in Plain English?
Question 2: Does It Make Sense?
Question 3: Is It Too One-sided?

6. Conclusion 14

4
2
Employment Agreement Fundamentals
GO TO TABLE OF CONTENTS

Does Every Employer Need

an Employment Agreement?
///

No, not every employer needs to have a written employment

agreement or contract.
In general, it is not a legal requirement or even a need for many business owners,
depending on the industry. It is, however, a wise choice, because it can provide a
higher degree of clarity, certainty, and security for both sides.

Let’s discuss some of the most significant benefits of a written employment contract.

Setting Clear Expectations Ease of Enforcement

Whether you own a small company or a
megacorp, one of the fundamental benefits
of employment contracts is that it establishes
a clear understanding between the parties.
To illustrate, a comprehensive contract
between a large corporation and a new chief
executive, who will steer the enterprise, is
crucial to the well-being of the company and
its employees. In that case, the impact of the
executive’s actions is significant. Therefore, it
is vital to document the expectations of both
sides, including performance expectations
and review, compensatory structures, and
procedural obligations. One should also outline
any acceptable and unacceptable causes of
termination of the relationship, including
opportunities for negotiation and the details of
any severance package. Written employment
agreements may also be useful for smaller
companies and non-executive positions for the
same reasons.
Reducing all major transactions and agreements
into written contracts allows a business to
enforce expectations and order among all the
parties, even in court if necessary. By utilizing
well-written contracts, business professionals
can point out the pre-existing terms of
employment to a non-performing employee.
Well defined terms can show that employee the
scope or completion of work promised, affirm
the conditions to be met prior to completion, or
enforce that original agreement in court. That
final, critical benefit means that a well-drafted
agreement written in plain English can help
employers and employees resolve disputes
outside of court.

5
Employment Agreement Fundamentals
DOES EVERY EMPLOYER NEED AN EMPLOYMENT AGREEMENT ?
(CONTINUED)
///
Providing Protection
A variety of protections for
both employer and employee
may be integrated into a written
employment contract
or agreement.
Often, some protections described in the
contract may be triggered much later in the
relationship. For example, the Confidentiality
Clause protects an employer's proprietary
information. An Attorney's Fee provision sets
out the rules regarding parties’ responsibilities
for legal costs during a dispute. And an
Arbitration Clause ensures the confidentiality
of the dispute itself, shielding it from public
scrutiny. Keeping disputes confidential helps
preserve the reputation of both parties, which is
important for many, if not most businesses.
GO TO TABLE OF CONTENTS
Confidentiality Clauses
All companies should seek
to protect their proprietary
information, as it is key to their
financial success.
Since each successful business has its own
“secret sauce,” the revelation of which could
bring it harmful consequences, employment
contracts often include confidentiality
provisions that seek to protect proprietary
or secret information prone to disclosure.
However, it should be noted here that recently
Confidentiality Clauses and post-conflict
Confidentiality Agreements have been used
by corporations to hide inadvertent and
intentional procedural or legal errors by their
representatives inside the company. Many
state courts have frowned upon this practice
in recent years; therefore, it would be wise
to avoid any clauses that grant the employer
undue power to censure employees who
have experienced discrimination or internal
corporate wrongdoing.
6
3
Employment Agreement Fundamentals
Common Types of
Employment Agreements
///
Here are some of
the most common
employment
relationships.
Oral Employment
Agreements
Oral agreements are still
around. For busy business
owners, it may seem easier and
faster just to verbally describe
the job duties so the new hire
can get to work as soon as
possible. Unfortunately, such
verbal contracts can lead to a
lot of misunderstandings later.
While sometimes enforceable,
they are still much harder to
prove. Thus, they expose the
company to more potential
disputes and needless litigation
by disgruntled employees and
dissatisfied employers.
GO TO TABLE OF CONTENTS
Written Employment Agreements
Written agreements are much safer for most parties. Yes, they take
more time and expense to prepare, but they save business owners
time, litigation costs, and lots of future headaches. For that reason
alone, even a relatively standardized employment contract should
be viewed as a necessary cost for protecting your business. And
remember that ordinary and necessary, legal expenses directly
related to running a business are tax deductions. That’s a bonus!
At-will Employment Agreements
Many employers prefer to identify their employment contracts
as “at-will.” At-will employer-employee relationships can be
terminated by either party at any time without reason given. At-
will employment relationships are common in some states. For
example, in California, all employment relationships are considered
“at-will,” unless otherwise specified. While that may not seem to
provide security for both parties, since it lacks a definite term or
employment, it is nonetheless highly effective from a business
standpoint. Consider this: when a relationship is at-will, each party
must provide enough motivation for the other to continue in their
association. The employer must maintain acceptable working
conditions for the employee, including remuneration, benefits,
working hours, and conditions. Conversely, the employee is
motivated to labor productively to demonstrate worth to
the employer.
7
Employment Agreement Fundamentals
COMMON TYPES OF EMPLOYMENT AGREEMENTS (CONTINUED)
///
Fixed-Term Agreements
In certain circumstances, the
best option can be to lock-in
the relationship for a specific
period. This is often the case
when an employer might want
to secure an employee with
special knowledge or talent
to achieve a specific goal. On
the other side, the worker
benefits from job security.
Such agreements are contracts
that are often not as simple
as they seem. They can be
between the employer and
employee personally, as with a
principal and teacher, or even
between an employee and the
employee’s agent, as is usually
the case with entertainment
contracts. In all of those cases,
the employment contract
negotiation should include
or be conducted between the
parties' legal representatives.
Then any extensive
"termination for cause" clauses
are examined, fully articulated,
and assigned appropriate
severance packages. Drafters
and legal representatives
GO TO TABLE OF CONTENTS
should also remind employers that fixed-term agreements have
expiration-termination dates. They also can have earlier built-in
renewal dates and may or may not have options for new terms and
offers included. Moreover, if the parties continue to operate under
the terms of the expired version of such a contract, the parties and
the court can assume that the terms of the original contract remain
in full force and effect until the contract is terminated and a new
one signed.
Casual Employment Agreements
One final type of employment agreement is worth mentioning here.
Under this type, the parties define an employment relationship of
indefinite or fixed term and may or may not include a minimum
number of working hours. Here, the parties cooperate on an
irregular or intermittent basis. Any number of industries use this
type of agreement; everyone from film extras, homecare providers,
cooks, and home cleaners to babysitters are asked to sign such
temporary employment agreements.
As a rule, the parties themselves
decide which type is suitable for their
relationship. However, they should
always bear in mind that each of the
contract types above has advantages
and disadvantages. The lawyer should
not only know the laws of the state
in which the employment will take
place, but also make commercially
sound recommendations as to which
type of agreement is most warranted,
given the expectation of the drafting party.
8
4
Employment Agreement Fundamentals
GO TO TABLE OF CONTENTS

Five Clauses That Every

Employment Agreement
Should Have
///

Let’s look at five key features that you should

include in all your employment agreements.

Position and Job Depending on the position, this provision may consist of a single sentence
Responsibilities or several pages of description. Defining the employer's expectations of the
candidate for the position ensures clarity and understanding between them.
Drafters often face challenges laying out responsibilities into task descriptions.
These descriptions must be specific enough for the employee to understand
yet broad enough that the employer still has room when they must assign an
unexpected ancillary or additional task.

Hourly or This provision will serve as the basis for many factors. Exempt employees—those
Exempt who are exempt from overtime or meeting minimum wage requirements—will most
likely not have set work hours but are expected to adhere to the company's normal
working hours. On the other hand, nonexempt employees are expected to work
at defined duties at or above minimum wage. They also operate on a set schedule
that includes state mandated breaks and lunch periods, per state and federal laws.
Requirements may vary from state to state, so drafting lawyers and representatives
must stay familiar with the laws and statutes of their respective states.

9
Employment Agreement Fundamentals
F I V E C L A U S E S T H AT E V E RY E M P LO Y M E N T A G R E E M E N T
S H O U L D H AV E ( CO N T I N U E D )
///
Probationary Period
The contractual embedded guarantee in an
employment agreement will also establish the
employee’s probationary period. During this trial
period, usually sixty to ninety days, the parties
can evaluate whether they are a good fit for
each other. The drafter should clearly indicate
what is included in the probationary period and
what is not. In some states, employers can even
reserve the right to extend the trial period to six
months or a year.
Compensation
Employers must specify the employee’s wage
or hourly rate. That provision may also include
other types of remuneration, such as bonuses,
paid holidays, and insurance coverage. For
a complex benefit structure, drafters may
include tables, charts, or charts with sample
calculations to ensure clarity and completeness
of the information.
GO TO TABLE OF CONTENTS
Termination Terms
At the beginning of a promising relationship,
no one wants to think about breaking up.
However, experienced drafting attorneys can
help business owners anticipate and prepare
for all possible outcomes of an employment
relationship, positive and negative. For
example, an employer may seek to include a
noncompetition clause. However, not every
state allows such a provision. California, for
example, does not consider noncompetition
agreements and provisions enforceable,
whereas New York welcomes them, so long as
the employer can prove that the other business
is a competitor, based on a four-pronged test.
Arkansas, on the other hand, admits non-
competition provisions with no such restrictions
other than the time and scope of the provision
itself.
10
5
Employment Agreement Fundamentals
GO TO TABLE OF CONTENTS

Three Questions for Making

Employment Agreement
Bullet-Proof
///

Aside from the obvious key to getting a solid contract — that

is, having a great drafting attorney—here are three simple
questions you can ask to test the strength of the agreement.

hard to avoid the efficient but convoluted (or

Question 1:
Is It Written
in Plain
English?
The drafter should always consider the level of
sophistication of their audience. Unfortunately,
reading statutes, laws and regulations, and
court options can mire lawyers in legal jargon,
to the point that it becomes their natural way
of thought and expression. Besides, it can be
even archaic) legal language. This legal jargon
might make a contract seem incomprehensible,
especially when the language must be included
to assure the validity, completeness, or
effectiveness of a specific clause. Nonetheless,
because employment contracts are rarely
signed with lawyers in attendance, employers
must ensure that they are written in plain
American English. This way, all parties to the
contract can read, understand, and sign it
(where appropriate) without consulting a legal
representative. Therefore, if there are any
signs that the employer does not understand
what is written in an employment contract, the
employee most likely will not understand it
either. So, the easiest way to achieve clarity and
readability is to revise the contract into plain
and concise American English.

11
Employment Agreement Fundamentals
GO TO TABLE OF CONTENTS

THREE QUESTIONS FOR MAKING EMPLOYMENT AGREEMENT

B U L L E T- P R O O F ( C O N T I N U E D )

///

Too often, business owners fail to review

and understand the final contracts that their
Question 2:
lawyer has prepared for them. That’s a big
Does It
Make Sense? mistake. Employment lawyers, no matter
how great and experienced they are, do not
handle the day-to-day practicalities of business
operations. Even if a preceding discussion and
lots of effort have gone into the agreement,
provisions that seem acceptable to the drafter
may become impractical and burdensome
to the employer. For example, an agreement
may provide that all notices of changes in the
employment relationship be sent between the
parties through USPS with acknowledgment
of receipt—a reliable and verifiable method.
However, that could be viewed as too
burdensome for one or both parties, if the
contract prescribes regular clerical work
resulting from updates and notifications of
worker's contact information, scheduled
holidays and vacations, and so on.

Of course, the client should always choose

a lawyer he trusts, but it’s still the client’s
responsibility to carefully review every business
agreement and make sure that it is clear
and practical.

12
Employment Agreement Fundamentals
THREE QUESTIONS FOR MAKING EMPLOYMENT AGREEMENT
B U L L E T- P R O O F ( C O N T I N U E D )
///
Question 3: Is It Too One-sided?
As mentioned above, employment agreements
are typically drawn up by the hiring
organization. However, this does not mean
that the employer should use it to take open
advantage of the other party.
From a legal point of view, courts highly
disfavor one-sided contracts and may invalidate
them on the grounds of unconscionability. If
proven that certain clauses of the contract
are so unfair as to “shock the conscience,” the
court can invalidate those clauses or even the
entire agreement. Courts will typically consider
multiple factors to determine whether the
principle of unconscionability applies. Some
include the following:
 The drafting party has grossly unequal
bargaining power.
 The terms themselves are clearly unfair.
 The signing party has barriers in
understanding the terms of the agreement.
 The stronger party has unilateral discretion
to change terms.
 The signing party’s statutory rights are
significantly limited or waived.
Moreover, if the contract is found to be a
“contract of adhesion,” also known as a “take-
it-or-leave-it” contract, it may be voided by the
GO TO TABLE OF CONTENTS
court. For example, in Armendariz v. Foundation
Health Psychcare Services, Inc , the California
Supreme Court found that employment contract
was a contract of “adhesion” and so invalidated
it in its entirety. (For the detailed overview
of adhesive contracts, download a free ebook
“How to Make a Contract of Adhesion
Less Adhesive”).
From a business point of view, such practices
are dangerous. First, they can discourage a
talented employee from signing a contract.
Aside from executive positions in large
corporations, employees usually do not hire a
lawyer to review or negotiate an employment
contract on their behalf. Most often, they do not
even consult a lawyer. So when they discover
that their employer has taken advantage of
them, they are likely to quit or even raise
a lawsuit.
Second, an employee may not want to discuss
unsatisfactory issues in the agreement, because
they simply don't want to appear "difficult."
That's not how to start a productive business
relationship. Finally, an unfair contract can
signal a dishonest employer, and if an employee
has other options, a highly unilateral agreement
becomes a deal-breaker. Let’s face it, adhesive
contracts that are too adhesive can damage
the employer’s reputation and cost them
excellent personnel. To check if an agreement
is balanced, ask this question: would I sign it if I
were in the other party’s position?
13
6
Employment Agreement Fundamentals
GO TO TABLE OF CONTENTS

Conclusion
///

The employment contract can play an important role in

the onboarding process.

While not a legal requirement, signing the agreement can bring numerous benefits to both parties.
Such agreements often contain important information about the occupation and employment
conditions as well as define the expectations and obligations of the parties. From the employer’s
standpoint, they protect the company, its proprietary information, and therefore its business. From the
employee’s standpoint, they offer predictability and stability.

Since the parties to an employment contract
do have considerably different interests, a
knowledgeable attorney can help business
owners choose the right type of agreement,
including the most appropriate and enforceable
clauses and provisions. Nonetheless, the
responsibility for reviewing and understanding
employment contracts, like all legal agreements,
rests with those who sign them. And so,
employment contracts, because they are so often
and so widely used, must clearly set out the
fundamental terms and provide the necessary
protection for both parties. Doing so removes
many roadblocks and protects everyone involved
so that we can all keep working!

14
ABOUT

Diana Isyanova
GO TO TABLE OF CONTENTS

Diana Isyanova is a business transactions attorney in Newport Beach, California.

Diana obtained her Bachelor of Arts in Business Economics from the University of California, Irvine,
graduating magna cum laude. Her innate passion for learning and relentless drive to achieve led her
to law school. In 2018, she received her Juris Doctor from Chapman University Dale E. Fowler School of
Law. There, she was a recipient of academic merit scholarship and earned CALI awards (highest grade
in class) in Negotiations, Legal and Equitable Remedies, Practice Foundation Transactions, Commercial
Leasing, and Estate Planning courses.

During law school, Diana participated in the Tax Appeal Assistance Program with the Board of
Equalization, published an article in the student-run scholarly publication, and served as a legal extern
for a solo-practitioner assisting him with drafting estate plan, delving in business formation issues,
and preparing for arbitration of financial disputes. After receiving her attorney license, Diana joined a
large, multinational firm where she practiced complex civil litigation with a focus on the automotive
industry. There, she dealt with reviewing and production of ESI, researching and analyzing automotive
regulatory and safety-related issues, and drafting responses to inquiries from NHTSA.

Diana’s exceptional ability to think outside the box and convert opportunities into workable realities,
naturally lead her into the entrepreneurial world. Diana enjoys tremendously helping small businesses
and solopreneurs – the main focus of her practice. She believes that a path to rising to the highest
level of greatness lies through strong work ethics and rational optimism. Diana is also fluent in Russian.
When she is not working, Diana loves spending time with her husband, three young daughters, a cat,
and a dog.

Diana is admitted to practice law in the State of California and to the United States District Court,
Central District of California. She is also a member of the Orange County Bar Association and the
OCBA Young Lawyers Division.

Instagram: @Isyanovalaw
Website: www.isyanovalaw.com
e-mail: diana@isyanovalaw.com

15