What Is An Employment Contract And Why Is It Important?


An employment contract is a legally binding agreement between two parties, generally between an employer and employee, and is designed to protect both parties.  For employees, having an employment contract gives them security by clearly outlining his or her duties and obligations of employment.  It also helps protect the employers’ clientele and intellectual property.

Because laws vary from state to state and an employment contract’s enforceability is often under scrutiny, careful considerations should be taken when drafting these contracts.  Not every contract is enforceable simply because it was signed.  Courts have the discretion to strike down all or part of a contract if it is found to be unreasonable or against public policy.  It is important to seek counsel from a knowledgeable Silicon Valley employment attorney who can help draft employment contracts that protect a company’s best interests.  The following are four examples of common provisions in employment contracts:

Non-Compete Provisions

A non-compete provision is part of an employment contract that states the employee is agreeing not to use anything learned on the job to join or start a new company that competes in the same market as the original employer.  In many states, non-compete provisions are entirely legal; however, California is a notable exception to this rule.  In few circumstances, a California non-compete provision is legal and enforceable.  Because non-compete provisions are usually void in California, many companies try to find ways around these laws.  Non-compete provisions are particularly notorious for being struck down by courts as overly broad in duration or geographical location.

When drafting a non-compete provision, it is pertinent that the language is limited if an employer hopes to draft an enforceable non-compete provision.  Having the assistance of the Silicon Valley employment attorneys at Startup Company Counsel, who are distinguished for their success in employment related matters, such as drafting contracts, can greatly increase the chances of having an enforceable non-compete provision.

Non-Solicitation Provisions

While non-solicitation provisions in California are generally void, California courts have upheld narrowly drafted non-solicitation provisions.  Whether or not the non-solicitation provision is enforced depends on what the provision deems “solicitation”, whether the identity of an employer’s customers and/or employees can be considered “trade secret”, and the extent of the employee’s personal knowledge.  California courts have also held that customer information and identity may qualify as trade secrets, and have such held that the use or disclosure of a former employer’s customer information to solicit customers is a misappropriation of trade secrets.  In other words, a California business can legally require that former employee to maintain confidentiality of trade secrets and confidential information.

Ownership of Intellectual Property

It is important that employers draft employment contracts to protect their intellectual property, trade secrets, customers, and goodwill.  While a non-solicitation provision is generally unenforceable, an employee can be prohibited from using and disclosing trade secrets and confidential information.  With a well drafted “confidentiality clause”, a company can protect its intellectual property from being exposed.  In addition, invention assignment provisions can greatly protect a company from employees using company resources to create their own businesses.  Our experienced Silicon Valley employment attorneys know how to include the proper provisions to your employment contract to protect any business and its intellectual property.

Employee vs. Independent Contractor Status

An employment contract will specify whether a worker is being hired as an employee or an independent contractor.  As we previously discussed, there are significant differences between an employee and independent contractor.  If a situation ends up in litigation, a judge is not bound by the term used in the contract language.  He or she can look beyond the title (and even beyond the W-2 or 1099 tax form used) to determine if the relationship is actually that of an employee or independent contractor.  It is crucial to draft an employment contract to define the worker properly, whether as an employee or independent contractor, and subsequently, treat the employee consistent with the employment contract.

Contact Experienced Silicon Valley Employment Lawyers

Employment law can be complicated and has many obligations to be followed.  Let the experienced employment law attorneys at Startup Company Counsel ensure your company’s compliance with California employment law by advising you on how to protect your company’s interests.  Having a legally binding employment contract helps avoid misunderstandings and gives both parties clarity about both the rights and responsibilities expected.  The Silicon Valley employment lawyers at Startup Company Counsel are recognized for their outstanding reputation for success in employment law matters.  Call (408) 441-7555, or use our online contact form to schedule your consultation with a Silicon Valley employment lawyer today.

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