What is an Employment Agreement?
10 mins • 22 Dec 21
The employment agreement outlines the rules, rights and responsibilities for both the employer and the employee. In this article, we’ll be going through the legal aspects of what to include in an employment agreement and why, as well as what to look for before creating one.
What Is In An Employment Agreement?
An employment agreement is crucial as it concretises the obligations that you require your employees to fulfil, as well as provides some degree of certainty with respect to your labour force. An employment agreement would typically cover matters such as:
◼️Remuneration
◼️Leave
◼️Working hours
◼️Responsibilities
◼️Benefits
◼️Non-Compete obligations
◼️Performance reviews
◼️Termination notice period
Understanding post-employment restrictions
One of the issues that would arise when hiring someone is if they have a post-employment restriction. Whether you’re hiring an employee with post-employment restrictions, or setting up an employee agreement to have post-employment restrictions, these are the most common items to include:
Non-Compete obligations
These expressly restrict the employee from competing with their former employer. Such restrictions typically apply for a specific time (e.g. “1 year after leaving the company) and in a specific area (e.g. “within the markets in which the employer operates).
Non-Solicitation obligations
These expressly restrict the employee from trying to convince (or in slightly more legalistic terminology, solicit) the former employer’s other employees, clients or suppliers to cease dealing with the former client.
Confidentiality obligations
These restrict the employee from disclosing information that they obtain in the course of their employment with the former employer.
Startups can be so eager to hire new talent, that they overlook the pitfalls that may arise from hiring employees, who are subject to such post-employment restrictions. The risk here is that by hiring someone subject to such restrictions your company may end up being found liable for procuring a breach of such restrictions - even if your company has done so inadvertently.
In an ideal world, you would want proof (e.g. a copy of their old employment agreement) that your prospective employee is not subject to such restrictions. In a more practical/realistic world, your template employment agreements should include express representations from him/her that he/she is not subject to such post-employment restrictions.
Benefits of Employment Contracts
When drafted well, an employment contract can provide a variety of benefits to a company and its employees, including:
◼️Recognising the criticality of human assets
◼️Making it easier to attract top talent
◼️Creating positive first impressions
◼️Explaining roles and responsibilities
◼️Ensuring the employer gets the benefit of employee-generated IPR
◼️Enabling performance management of employees
◼️Delivering performance incentives
◼️Mitigating risk of employee claims
◼️Smoothing out bad hire departures
◼️Protecting employers from reputational risk.
What's Next?
When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.
We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.
*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.
Observations and Tips
- Clearly Define Roles & Responsibilities: Employment agreements should specify job title, duties, reporting structure, and performance expectations clearly.
- Document Compensation & Benefits Properly: Salary, bonuses, leave entitlements, incentives, and benefits should be transparently stated.
- Protect Confidential Information & Trade Secrets: Confidentiality obligations should survive termination where necessary.
- Ensure Intellectual Property Ownership: Employment agreements should clearly assign employee-created IP to the company.
- Include Working Hours & Employment Terms: Remote work, hybrid arrangements, probation periods, and workplace policies should be addressed clearly.
- Define Termination & Exit Procedures Carefully: Notice periods, termination rights, severance obligations, and post-employment restrictions should be structured properly.
- Use Role-Specific Agreements Where Necessary: Executive employees and general staff often require different contractual protections and obligations.
- Align Agreements With Local Employment Laws: Employment contracts should comply with jurisdiction-specific labour and compliance requirements.
- Maintain Clear Policies & Internal Procedures: Employment agreements should integrate company policies relating to conduct, discipline, and compliance.
- Avoid Informal Hiring Arrangements: Vague offers and undocumented employment terms often create disputes and operational risks.
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