Employment Agreement

An employment agreement is a legally binding contract between a tech company and an employee. Employment agreements are not typically used for startup companies because offer letters are simpler, cheaper and usually adequate to document at-will employment relationships with their employees. Certain employees, including executive officers, may be hired pursuant to an employment agreement for a specific employment term.

Important elements of employment agreements include the following:

Compensation: The amount of base salary and bonus.

Employment term (unless at-will): The beginning and ending dates of employment. If no automatic renewal clause is included, the agreement must be clear about the terms of any continuing employment relationship.

Termination: The agreement should specify the reasons the term may be shortened, such as for cause, death, disability, resignation or sale of the tech company.

Duties: The employee’s title and some description of his or her duties. In certain cases, a more detailed description of duties is included as an exhibit to the employment agreement. The agreement also should provide for time commitment if other than full-time.

Post-termination compensation: The agreement should outline the circumstances when the tech company will owe separation pay (also commonly referred to as severance), the amount of such pay and the employee’s obligations in the event of separation pay. If the employment agreement contains a separation pay provision, it should only be triggered by a termination without “cause,” as defined in the agreement. In addition, if the separation pay amount is fairly large, the employer should consider paying the separation amount in accordance with its standard payroll practice (as opposed to in a lump sum) with a mitigation/offset requirement. In the alternative, the technology company employer could enforce a non-compete covenant during the separation pay period.

Other terms: Other terms that may be included are non-competition provisions (rare for California based companies), confidentiality clauses, restrictions on soliciting employees after termination, choice of law and notice provisions. One note on non-compete provisions under California law. Although most non-compete covenants are unenforceable under California. Bus. & Prof. Code § 16600, a tech company employer may still protect against a former employee using or disclosing its trade secrets to compete.