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How employment contracts can protect companies from worker lawsuits

On Behalf of | Feb 7, 2024 | Business Law

Hiring new employees can improve a company’s productivity and efficiency. However, those workers can also cost the company quite a bit of money. The funds necessary to cover another salary can be significant, and there are always risks that a worker could make mistakes that create liability for the business.

Additionally, workers who feel like a company violated their rights might take legal action against the business after accepting a new job elsewhere or experiencing professional setbacks. A lawsuit brought by a worker can quickly become expensive for a business.

The cost of responding to a pending employee lawsuit could affect a company’s operating budget. Any public awareness of the pending lawsuit could also prove damaging to the business. Companies can sometimes reduce the chances of those costly employee lawsuits through better employment contract terms.

Clarifying rules and expectations

An employment contract may outline numerous terms of an employee’s new arrangement with a business. For example, the contract should include details about compensation and job performance expectations. Employers may also want to include clear rules regarding bonuses, incentive pay and job benefits. Additionally, contractual inclusions outlining disciplinary procedures and how the company evaluates worker performance can limit questions and frustrations about disciplinary actions and negative performance reviews later.

Limiting certain worker conduct

Many employment contracts include a number of prohibitions and restrictive covenants. Companies frequently request that workers not communicate with mainstream media about their jobs. Rules about how workers comport themselves on social media are also quite common. Many employers use restrictive covenants, including non-compete and non-disclosure agreements, to prevent workers from harming the company after they leave their positions.

Additionally, employment contracts may include zero-tolerance policies related to discrimination and harassment. Having those terms in writing can protect companies from claims that they allowed a toxic work environment to proliferate and negatively impact workers.

Each position with the company and every new hire may require a review and renegotiation of certain contract terms. Optimizing the protections derived from employment contracts can help reduce the risk inherent in acquiring new talent.