Employee Contracts: Preventing Problems Down the Road

employee handbookIn previous articles in this series, we’ve explored client contracts and subcontractor contracts. Now it’s time to close the loop and visit contracts for employees. I submit that these are the most critical. 

Many organizations use an employee handbook to clearly spell out company policies and procedures. Small Business Notes offers a comprehensive list of the categories you can cover in a handbook. It is up to you which of these items are pertinent to your business. Your employees should also sign a document stating that they have read the handbook and have received a copy of it for future reference. 

Your employees are a representation of your company. They also have access to much, if not all, of your information. In reality, they ARE the wheels that turn your business. You want to be sure they represent you well; that they understand what is acceptable and what isn’t. 

Take the case of the Montgomery Tennessee County Sheriff’s office firing an employee for inappropriate use of the internet. According to the Leaf Chronicle story on April 3, 2009, the Sheriff dismissed Segovia for conduct unbecoming of an officer. As you can see in the story, Segovia may sue for wrongful termination. One key will be how clear the employee handbook is regarding conduct on and off duty. 

In addition to employee handbooks that go to all of the employees, non-disclosure agreements and non-compete contracts are usually given to the sales staff. These are the people who are in front of your clients and prospects. You don’t want your salespeople building relationships with your clients only to leaving and take those relationships with them to your competition. Non-disclosure agreements should also be given to anyone who is given access to your trade secrets and pricing platforms. 

You can find access to these types of contracts at FindLegalForms and NOLO. 

It’s great to be trusting. However, your responsibility to your company, your staff, your clients, and yourself is to be sure you’ve done what you can to protect what you’ve worked so hard to achieve. 

Being a business owner means being realistic and responsible. You don’t want to have that responsibility thrust upon you as the result of the lack of effective employment contracts. 

If you don’t have employment contracts right now, or are wondering if yours are adequate, answer these brief questions:

  1. What are the things you want your staff to do on a daily basis (this includes attendance, attire, attitude)
  2. What information, if shared with outsiders, could hurt your business? Who has access to that information?
  3. How important are your clients to your success?
  4. What do you expect, performance-wise, from your employees by department?
  5. What types of communication/reporting do you need from your staff and how often?
  6. If you were a new employee at your company, what would you want to know? 

Finally, ask yourself this – are the answers to the questions above written down in a contract, handbook, or other vehicle that is signed by the employee? 

If the answer is no, you might want to get moving on setting it up. The great thing about employment contracts is that you can implement them at any time. It will be in the best interest of everyone involved.

Editor’s Note: this is the third of a 3-part series about situations in which you need contracts in a small business.  For part one (about client contracts), read:  Death by Contract, or Lack Thereof.  For part two, read:  Subcontractors – One More Reason For A Contract.

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Diane HelbigAbout the Author: Diane Helbig is a Professional Coach and the president of Seize This Day Coaching. Diane is a Contributing Editor on COSE Mindspring, a resource website for small business owners, as well as a member of the Sales Experts Panel at Top Sales Experts.


Diane Helbig Diane Helbig is a Professional Coach and the president of Seize This Day. Diane is a Contributing Editor on COSE Mindspring, a resource website for small business owners, as well as a member of the Top Sales World Experts Panel at Top Sales World.

9 Reactions
  1. Martin Lindeskog


    I see differences between employee handbooks in Europe and USA. Do you know about companies that have minimized the amount of rules in their handbook and made it easy to follow it? The “rule of conduct” should be integrated through the whole organization and it should be compatible with the company’s vision and mission statements. Again, it going back to the trader principle and it starts with the individual.

  2. Michelle Bomberger

    Love this! It’s so important for businesses to think about the opportunities and risks of employment relationships and nail down the important terms! One addition: online contracts such as those on NOLO are a great starting point but very likely aren’t customized enough to really ensure the company’s interests are protected. Start wit that but have a lawyer add his or her two cents to ensure it REALLY does what the business needs it to do!

    Thanks for reminding people of how important this is!

    Michelle Hayden Bomberger – JD, MBA

    Small Business Legal Services PLLC
    Business experience. Legal counsel. Bottom line results.

    800 Bellevue Way NE, Suite 400
    Bellevue, WA 98004
    t 425-646-2360
    c 425-503-2578
    f 866-278-9862
    e michelle@sblslaw.com http://twitter.com/MichelBomberger

  3. Michelle, thank you so much for your comment. You are so right! An employee contract is only as good as it covers the items that matter to your company. Make sure your bags are covered!

    Martin, I did not know that there was a difference between us and europe on this subject. I’d love to hear more about that!

  4. Back in the day, when I was Head of HR in the corporate world (one of my many hats), I used to participate in due diligence for potential acquisitions of smaller companies.

    Key points we looked at were:

    (1) the existence of an employee handbook and any employment offer letters/agreements, and what they said;

    (2) whether employees signed assignment of patents and other agreements to protect the business’s intellectual property upon coming on board; and

    (3) the existence of outstanding claims by employees against the employer.

    If these items did not pass muster, it required holdbacks (or effectively lowered the purchase price we paid for the business). In extreme cases where we learned that the business was a big mess (employment issues often being one of several areas) we nixed the deal altogether.

    What I am saying is that contracts with employees can actually increase the value of your business in the marketplace. Lack of them can be deal-breakers.

  5. Thank you, I was just getting started on a handbook. This has been a lot of help.

  6. Great article, certainly helpful in making sure the bases are covered when it comes to employees.