Addressing resignation and termination in employment contracts

On Behalf of | Sep 25, 2019 | Business Contracts and Leases

As a business owner, you likely have a workforce comprised largely of people who don’t have employment contracts. These are considered “at will” employees. However, you may need to hire some experienced people with valued executive or technical skills that your company requires. To induce them to leave their current employer to take a job with you, you may need to guarantee certain things to them in an employment contract. Like all documents you require your employees to sign, it needs to provide protections for you and them. In addition to things like salary, commissions and benefits, the contract should address what happens if either party terminates the employment — specifically what compensation they’re entitled to receive. You should address what happens if the employee resigns. Typically, they will receive the salary and accrued vacation time. If the employee receives bonuses and other payouts at the end of the month, quarter or year, you may want to stipulate whether they’ll be entitled to that compensation even if they resign before the end of that period. Some employers will differentiate a resignation “with good reason” from one “without good reason” and what happens in each case. An example of a “good reason” may be a change in management, a demotion or other circumstances that considerably alter an employee’s role in the company. Some employees ask for a “golden parachute” in these cases, which lets them leave with a considerable amount of money. Resignation “without good reason” can be any number of things that have nothing to do with the employer. A person may resign to go to work for another company, for example. Terminations also need to be addressed. Most terminations are considered “without cause.” That doesn’t mean there’s no reason for them. Ohio is an “at-will” state. Employees can be terminated whenever an employer chooses, as long as it’s not for an illegal reason, like because of their race or other protected status. Employees may try to negotiate a severance package if they’re terminated without cause Termination “for cause” typically involves serious and intentional misconduct or breach of contract. Most employees get no payment beyond salary and accrued vacation if they’re fired for cause. Each of your employment contracts may vary based on what you negotiate with the person you’re recruiting. It’s essential that your attorney be involved in the drafting and review of these contracts.