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Employment and termination agreements are a must-have for HRs and employees. Unfortunately, more than 60% of employees do not have any form of employment contract.
While oral agreement may be legally binding, it is not easy to regulate and you cannot use it to prove conditions you discussed with employees.
As a startup, the employment process is important and it will have a huge impact on the growth and future of your organization. The talents you hire and the conditions under which you hire them are important factors that you should not overlook.
So, if you want to be taken seriously by your potential employees and competition, keep reading to discover how you can provide clear and transparent employment and termination contracts.
What are Employment Agreements?
Alt: what is an employment agreement
Hiring and retaining talents is one of the most important aspects of running a successful startup. However, you must do better than offering competitive benefits to find and keep the best employees.
You must also create and enforce fair and clear employment contracts. Such contracts must protect both you and the employee.
An employment agreement is a legal document that spells out the terms and conditions of employment, such as the responsibilities, duties, compensations, rights, and termination clauses.
The agreement can also include clauses on intellectual property, confidentiality, non-solicitation, non-compete, arbitration, and severance.
How Can Employment and Termination Agreements Help Startups?
Employment and termination agreements are assets for hiring and resignation. Here are the different ways they are important to startups:
Establishing Termination Conditions
Employment contracts are not limited to bonuses, salary, and holidays. The termination of the contract is a crucial aspect that is often ignored.
Employers use the contract to set the record straight right from the outset. As a result, employees will know what is expected from them during the resignation process. This aspect usually describes the tasks they need to fulfill before they can legally terminate their employment.
Some of the tasks may include:
- Writing a resignation letter within a specified timeframe
- Training other colleagues
- Completing unfinished tasks or projects
- Informing the HR and manager about the intention to resign
Managing Expectations
An employment and termination agreement must state clear conditions under which employment starts and terminates. This helps build trust and creates a safe and positive working environment for startups.
Whatever you outline in the employment contract must manage the expectations for employees and employers;
- Employees must know what to expect in terms of promotions, salary, bonuses, and benefits amongst others.
- Employers, on the other hand, must be aware of their limits (in terms of work-life balance).
Improving Productivity and Engagement
When you start with clear expectations, employees will feel less stressed about their working conditions and they will focus more on being efficient and productive.
Transparent and clear employment and termination agreements build trust between employees and employers, thereby improving engagement and dedication to the workplace.
More so, employees will be more confident when they start with clear expectations since they know what they are expected to do and what is not within the limits of their job description.
Components of Startup Employment Terms
The terms contained in a startup employment contract depend on the nature of the startup’s business, the position offered, and the internal policies of the company.
For instance, a senior-level executive’s employment contract will be more extensive than a contract for an entry-level staff.
Here are some clauses that can be found in a startup employment contract:
Terms of Employment
These refer to the duration of the job the employee accepts. The term of employment is usually indefinite in most cases. However, short-term positions state the beginning and end dates.
Employee Responsibilities
These help employees know if they are fulfilling their duties. Employee responsibilities usually include:
- Hours of employment
- Primary location
- The executive the employee will report to
- Description of the services the employee will offer
- Requirements necessary to maintain the professional license(s) of the employee
There may be slight differences in the list of responsibilities in an employment agreement depending on the role the employee was hired for. However, they should be clear enough for employees to know if they are fulfilling them or not.
Performance Expectations and Requirements
Companies in fields like sales often set clear performance goals that they want employees to fulfill. Apart from the minimum requirements, employees may be expected to fulfill other goals.
For instance, an employee’s main job responsibility may be to execute certain tasks, but he or she may also be required to win new clients.
It is, therefore, important for an employee to know precisely the results the employee wants from him or her right from the beginning.
For instance, if an employee was hired to improve a certain area in the company (and this was clearly stated in the employment contract), he or she will be able to come up with ideas that will help the company achieve the desired results.
Employee Benefits and Premiums
The standard benefits package for a full-time role usually comprises life insurance, health insurance, disability, and retirement plan contributions. Some organizations also include profit-sharing and stock options in their benefits package.
Employees need to know the extent of their benefits. For instance, if there is an annual deductible in the health insurance plan, then it is the money the employee will pay out of pocket annually.
Are vision and dental coverage included? What are the limits for out-of-network care? These questions will help employees make the right choice while choosing from their companies’ health plans.
In a nutshell, some components of an employee benefits package include:
- Health insurance
- Dental insurance
- Vision insurance
- Life insurance
- Disability insurance
- Paid time off
- Retirement plan
Employment Absence
Employee absence policies are structured differently. Some companies offer their employees a specific number of personal days, sick days, and vacation time every year. Others offer employees a block of unspecified PTO (paid time off) days every year.
It is important to include this term in the employment contract because it helps employees know if they can accumulate and roll over unused days for future use.
Dispute Resolution
A dispute resolution clause provides the procedure for handling conflicts when they arise between an employee and the employer.
Disputes can be resolved through 3 options:
- The company can create an in-house policy to address and resolve minor conflicts at lower levels of management.
- The company may use an arbitration process to keep more serious issues out of court.
- The company can also indicate a particular jurisdiction for filing and litigating all legal claims).
Including this term in an employment contract will protect a startup from negative publicity and prevent the possibility of a huge jury verdict.
Non-Disclosure Agreements
A non-disclosure agreement (NDA) prevents the employee from disclosing sensitive information about the company. Examples of this information include client lists, business data, trade secrets, and internal procedures.
Courts usually uphold NDA agreements as long as the parties involved understand the terms at the beginning. Hence, non-disclosure agreements must be reasonable and clear so that employees do not limit their ability to find another job in the same industry.
Ownership Agreements
According to an ownership agreement, anything you produce as a company’s employee belongs to the company. For instance, if you are assigned to an assembly line, any product that rolls off the line belongs to the company.
However, there are some situations where this gets tricky. For instance, situations where the employee designs a product, valuable idea, or process. No matter how much the company makes from the employee’s effort, the company can only give the employee the compensation contained in the employment contract.
This clause also includes intellectual property that has not been fully implemented. For example, a Texas court asked a former employer of Alcatel to return a software algorithm to his employer (although the algorithm was still a theoretical concept in the employee’s mind while working with the company).
Termination Clauses
An employment contract must clearly outline the possible reasons for termination. Employment contracts provide employees certain protections, even if they are in ‘at-will’ conditions where they can be fired anytime for any lawful reason.
The employment contract must clearly outline the potential reasons for termination in an easy-to-understand language.
Employment Law Compliance for Startups
Employment law can be difficult for startups to deal with. Startups need to understand the different employment laws that apply to their specific situation because they can have a huge impact on the success of the business.
Employment laws guide the relationship between employees and employers. They cater to issues like hiring, firing, working hours, wages, harassment, discrimination, etc. As a startup, you must know the laws that apply to you and the rights of your workers.
Some of the most important employment laws that you must be aware of include:
- Discrimination laws
- Minimum wage laws
- Workplace safety regulations
- Overtime pay laws
These laws differ from state to state. Hence, find out the specific laws that apply in your jurisdiction.
When hiring employees for your startup, ensure you follow the state and federal hiring laws. For instance, do not discriminate against potential employees as a result of their gender, race, or religion. Also, employees must be paid at least the minimum wage that is required by law.
In addition to the employment laws about hiring and firing, you should also pay attention to industry-specific laws that apply to your specific situation. For instance, startups in some industries may need to obtain specific certifications or licenses to legally operate their business.
Tips for Ethical Employee Termination
A termination agreement may be required for different reasons (such as poor performance or the need to leave a job for a better offer).
Irrespective of the reason, a termination agreement provides a clear and legally binding structure for terminating employment. This saves the employer from legal issues in the future.
The key elements that a termination agreement must include to make it legally binding include:
- Identification of the parties
- Reason for termination
- Severance pay
- Termination date
- Return of company property
- Non-disclosure agreement clause
- Mutual release
According to research, team members with positive offboarding experience and who left the company on good terms are about three times more likely to recommend the company to others than those who left with a bad experience.
The essence of the offboarding process is to:
- Stay compliant
- Get honest feedback from the employee that’s leaving, and
- Ensure other employees continue doing their best work
Here are some tips for executing an ethical employee termination:
Understand the Legal Requirements
As stated earlier, different states and countries have different legal requirements. Hence, you need to research and understand the legal requirements specific to your location. Some legal requirements that you must consider include return of company property, payment of final wages, provision of notice, and severance pay.
Include the Necessary Details
Details such as the date of termination, amount of severance pay, reason for termination, and other terms and conditions (that the employer and employee agreed upon) must be included in the termination contract.
The details must be detailed and specific to avoid disputes or legal issues.
Consider Non-Disclosure Clauses
Include confidentiality and non-disclosure clauses in your termination agreement if it involves trade secrets or confidential information.
These clauses will prevent the employee from revealing or using the company’s confidential information. It will also protect the startup’s intellectual property.
Get Signatures from Both Employer and Employee
To make the termination agreement legally binding, both the employer and employee must sign and date the document. Also, keep a record of the termination contract to protect you in case there are any legal proceedings or disputes.
Consult a Legal Professional
Consult a legal professional before you finalize a termination agreement. A lawyer can ensure that the agreement is legally binding and can be enforced. The lawyer can also advise you on potential legal issues or risks.
Best Practices for Conducting Exit Interviews in Startups
The Work Institute’s 2022 Retention Report revealed that businesses can easily reduce attrition by knowing the factors responsible for employee attrition and tackling the factors.
The report referred to the factors as “a predictive analytic for current employees that are at risk of leaving.” The factors are significant because businesses spend about 33% of the employees’ salaries to replace them.
According to an HBR study, fewer than one-third of organizations that conducted an exit interview could remember changes in operations or policies that emanated from feedback during the interviews.
However, there’s a higher chance of obtaining positive feedback and driving change if second or third-line managers conduct the exit interview.
According to the study, companies must conduct at least two exit interviews (one interview while the employee is still at the company and another interview before the employee leaves). The second interview helps the interviewer gain insights that were not shared in the first interview.
The study also suggests:
- Using web and telephonic surveys to ask questions in addition to face-to-face interviews, and
- Training interviewers on how they can get better responses from employees
Furthermore, you can get honest feedback from exit interviews by asking open-ended questions that allow employees to elaborate on their experiences. Some of the questions you can ask include:
- What motivated your search for a new job opportunity?
- What specific changes do you believe would help retain your commitment to our organization?
- Did you feel adequately equipped with the necessary tools, skills, and training to perform your job proficiently? If not, what was missing?
- Would you recommend our organization to your connections? What are the reasons behind your recommendation or lack thereof?
- What alternative approaches could your manager have taken to improve your experience?
- Did the actual responsibilities of your role differ significantly from what you were initially hired for?
- What practices or behaviors do you think our company should discontinue?
- If your departure from the company is currently final, would you be open to considering future opportunities with us?
Offboarding Checklist for Startups
The offboarding process depends on the position and responsibilities, however, companies must have an employee offboarding checklist that can guide them while offboarding an employee.
These tips will help you create an employee offboarding checklist:
Setup Space
Preparation
A dedicated space for exit interviews will help maintain privacy. It is also a sign of respect for the employee. Separate this space from regular work areas to ensure confidentiality and prevent distractions and disruptions.
Timelines and Actions
1 Month Before the Last Day of Employment
- Inform HR and legal teams to review the employment and termination agreements. This will help the teams ensure that the legal aspects of the termination process are in line with the policies and regulations of the company.
- Prepare any final documentation required so that all the required paperwork will be ready for the termination process. This documentation includes compliance checks and performance reviews.
1 Week Before Last Day
- Ensure all the required paperwork (including the termination agreement) are ready to avoid last-minute delays.
- Schedule final meetings with the employee to discuss the termination process. Also, allow the employee to ask questions.
1 Day Before Last Day
- Prepare the termination space and ensure it is conducive.
- Ensure all logistical arrangements (such as the modification of IT accounts and security access) are ready.
During the Termination Conversation
Conducting the Meeting
- Communicate clearly and with respect during the termination meeting.
- Use a structured agenda to guide you and provide clear explanations for the decision.
- Allow the employee to express their feelings and ask questions.
After the Termination Conversation
Immediate Actions
After the termination meeting, retrieve any company property from the employee and secure company data to prevent breaches or unauthorized access.
1 Day to 1 Week After Last Day
- Prepare the final payroll and severe packages that the company owes the employee. This will resolve any financial issues.
- Conduct an exit interview to provide the employee an opportunity to share their experiences and thoughts. This interview will help you identify areas you can improve.
1 Month After Last Day
- Review the termination process to ensure that the offboarding process is effective and aligns with your company values.
- Ensure you have fulfilled all regulatory requirements related to the termination process to prevent any potential risks.
Wrapping Up
As a startup, you need to clearly define the relationship with each of your employees to effectively manage your workforce. This involves documenting the classification, compensation, and benefits, such as salary, bonuses, equity, and insurance.
Employers should sign agreements covering fees, confidentiality, and invention rights, while employees require more comprehensive documentation, like employment agreements (which must be presented and signed before work begins).
Startups must adhere to federal and state regulations for onboarding and offboarding employees. You can effectively manage your HR functions by outsourcing these tasks to a professional employer organization (PEO).
FAQs
How can a contract of employment be terminated?
An employment contract can be terminated by either party by issuing a notice of employment contract to the other party. The contract ends after the notice expires.
Who should conduct exit interviews to be most effective?
A neutral third party (such as an HR representative) should conduct exit interviews to encourage honest feedback. The employee may not open up if the exit interview was conducted by the employee’s supervisor.
What are the top tips for drafting startup employment agreements?
Some tips for drafting startup employment agreements include the following:
- Write a contract that aligns with your corporate culture
- Hire a solicitor
- Pay attention to basic terms like the working hours for the employee, holiday allowances, and their notice period
- Check for real-world experience in the industry
- The employee agreement must comply with state and federal employment guidelines
