Tuesday, October 14, 2008

Employment Agreements Not Required for Employees

One of our new clients is a software company that develops trading programs for financial services firms. We were helping them negotiate a 7-figure investment from one of its clients, a major investment bank.

In becoming familiar with our new client, it seemed odd to us that every employee had an employment contract, including the receptionist. When we inquired with our client, the CEO asked, “aren’t we required to have employment agreements with all employees?”

In every job the CEO prior to founding the company, had he always employed pursuant to an employment contract. He just assumed that this was the way business was done.

While it may be advantageous to enter into employment contracts with certain executive level employees or staff with very special skills, in most cases a contract is not necessary and is probably disadvantageous to management.

New York State is an “at will” employment state. This means that employees can be hired and terminated for any reason or for no reason, and at any time, without liability to the company.

Employment contacts alter this “at will” policy, which may give employees more rights than
what was available under the “at will” doctrine. This may expose the employer to liability if the employee was terminated in breach of his or her agreement.

Even though an employment agreement is not required, in businesses where employees are creating any form of intellectual property for the company, it is imperative that the company have the employee enter into an “assignment of inventions” agreement. This is not an employment agreement, but an agreement where the employee irrevocably assigns his or her right to any intellectual property they create for the company while employed there. Without is, in most cases, the employee (not the company) owns any inventions or IP it creates while on the job.

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