TIPS #5 and #6: Records and Employees
Two crucial areas where businesses stumble: maintaining proper records and fostering clear relationships. Skipping board meetings or muddling employment terms can undo even the most promising ventures. These are mistakes #6 and #5 on our list of 10 common errors. How’s your business measuring up?
Tip #5: Keep Good Records
Both small and large businesses rely upon the skills and knowledge of their key executives. Indeed, for many smaller businesses, the identity of the company depends in large part upon its key executives. By memorializing its agreements with key executives, businesses avoid misunderstandings and ensure key personnel have a long-term commitment to the company. Fundamental provisions which should be found in every employment contract include: Term of Employment; Position, Duties and Responsibilities; Compensation, Benefits, and Expenses; Termination; Protection of Company Trade Secrets and Proprietary Information; Ownership of Intellectual Property; Notices; Merger or Integration Clause; Amendments and Waivers; Severability and Enforcement; Governing Law; Opportunity to Consult Counsel/Understanding of Agreement; and, Remedies. Depending upon the circumstances, additional provisions and/or agreements may be required which cover Inventions and Ideas; Non-Competition; Stock Purchase Options; Other Compensation or Incentives; etc.
Tip #6: Properly characterize and document the employment relationship with all employees.
Just as it is important to memorialize the employment agreement with key executives, it is equally important to properly characterize and document the employment relationship with all employees of the company. Disputes with employees can have a detrimental effect on a business and seriously undermine employee morale. Thus, it is vital the employment relationship be understood by all parties. It is also of paramount importance that if it becomes necessary to terminate an employee, a wrongful termination lawsuit is avoided. In California, Labor Code § 2922 provides a presumption that employment having no specified term is “at-will” and may be terminated by either party without cause. However, the courts have held statements by an employer, either written or oral, which create an expectation of job security, can rebut the presumption of “at-will” employment. It is important employees acknowledge their understanding of the at-will relationship in a signed writing. In addition, a business must ensure the “at will” language is expressed in any employment contract/offer, and not countermanded by an employee handbook, or other conduct of the supervisors and managers of the company. Courts have regularly found that despite a statement the employment was at-will, subsequent actions by the employer, or statements in an employee handbook, created an employment relationship which required terminations to be only “for cause.”