How to make contracts legally stronger
You have to make contracts legally stronger if disputes with employees are to be avoided. There are several clauses in the contracts that you must be aware of; it always pays to be safe than sorry.
There is nothing totally right and totally wrong when there is a dispute between an employee and an employer. Both may be right from their own angle; so in order to avoid disputes, it is always better to make a legally strong contract that would hold water when the time comes. In this article, we attempt to shed some light into the tricks that go into making a legally strong contract and the different kinds of letters that you should be aware of.
When making a contract regarding employment with your staff, your aim should be to protect the best interests of your business, while keeping his/her rights in your mind. Each time you draw a contract, it should be written clearly, covering all aspects of employment and termination. Hence, this should be prepared under the advice of a qualified legal attorney. These contracts would help you maintain business relationships and operations on a stable platform. If ever, there arises a disagreement, the clauses in these contracts are meant to protect your business’s best interests.
Before hiring a new employee, you should put the job offer in writing in the form of an employment contract or employment letter. The main purpose of a contract is to set the terms of the employer-employee relationship in black and white, so the employee cannot accuse the employer of not doing something and the employer cannot blame the employee for not doing something for which he is not experienced.
There are different aspects involved in an employment relationship. They are
- Confidentiality agreement
- Proprietary rights agreement
- Termination letter
- Severance agreement
The employee will have to read the terms and conditions of each before signing on the dotted line.
How to draw a legally strong contract
Let us examine four different ways in which you can draw a legally strong contract:
- Clarity and completeness
The core aspect while drawing your contract should
be about the clarity and completeness of the contract. The contract should contain the complete and legal names of the persons involved in the contract, followed by the responsibilities and duties they each have. You will have to state the validity of the contract, specify the date range and the results you expect to achieve during the specified time period.
- All the Compensation Scenarios in detail
Compensation is most often the point of dispute between employees and employers. So everything must be detailed and signed, so there will be absolutely no confusion in the future. The mode of payment will also be specified in the contract – make it clear whether you are making a check, ACH or wire transfer. In case you are charging late fees or penalties for anything, you must specify this in the contract.
Point to note
A contract is said to be complete only when you cover the compensation scenarios. Be sure you write down all the payment details, even when you are hiring the services of a vendor, what you are paying, how you are making the payment and so on.
- The ending of the contract must be specified in detail
There is no confusion as to the start and end date of the contract. If you want to fire your employee, you will have to give him sufficient notice. If you are not specifying any notice, then both parties must be willing to let go. The contract should specify that all accounts payable and receivable are satisfactorily noted. The contract should also specify how and where the disputes will be handled, details of attorney and court fees. In case of dispute, it is this contract and subsequent paperwork that will come to your help.
- The seriousness of the contract must be maintained and respected
Contracts are legally binding documents. You cannot betray your employee or business associate’s trust by indulging the details of the contract to anyone. It is important that you lock away the contracts to a safe location with password protection capabilities, because believe it or not, protecting these documents is equal to protecting your business.
Point to note
It is advisable not to use a previously drawn contract to create a new one because old information must be carefully reviewed and removed before they are metamorphosed into a new contract.
Letters to be prepared while drawing the contract
Now, let’s look at the letters that are to be prepared while drawing contracts or leaving a job:
- Resignation letter
Employers may sometimes act a bit hasty about accepting resignation. It may happen that when the employee expresses an intention to resign, he may only be contemplating to do it, but not the actual process. If the employee did not tender his resignation in writing, then he cannot be dismissed. When you are hiring an employee, it is thus, very important to have a clause where you include details of resignation and termination. Some employers consider verbal resignation as formal resignation, and may even appoint someone else in the place of the employee who expressed his/her desire to resign. These are things that should be cleared when you are hiring someone.
Point to note
If you accept verbal resignation, then make that point clear to the employee. If you want the resignation in writing and expects the employee to tender advance notice, then make that point clear as well. No employee can threaten you on unlawful dismissal if he/she has tended the resignation in writing or through email. Contrary to popular belief, there will be no cooling off period.
- Relieving letter
Just as the employee is given a joining letter at the time of joining, he must also be given a relieving letter at the end of the contract. The relieving letter must contain details of the employee’s work period, the amount paid by the company for the job completed and the fact that the employee is being relieved from his work on a particular day. The employee has to present this information to his new employer or else he would be perceived as absconding. However, the contract should prepared in such a way that you have the right to dismiss an employee who is incompetent, lazy and downright unpleasant.
- Experience certificate
The experience certificate is a very important document that you must give your employee when he leaves the company. Everyone knows that it is a tough world out there and only people with the best talent would be able to take their career to new heights. It is the duty of the employee to provide an experience certificate for his staff once they leave the company, because it is an attribute to their skills and contributions towards the growth of your organization. Some of the major components of an experience certificate are
- Date of issue (of the experience document)
- A declaration stating “To whom it may concern”
- The name of the employee in full
- His designation and exact duties
- Tenure of the employee within the company
- The resourcefulness of the employee and his work habits
- A sentence on the company’s or organization’s objective impressions of the staff
- And a last line – wishing the employee on his new journey
Point to note
The declaration letter doesn’t state any particular (potential) company or employer, because the employee may have to take copies of the same and distribute it to other companies that may demand it in future.
It need not be a very big letter, but the above mentioned points make a complete experience certificate.
Once the contract is drawn, review it thoroughly to ensure its accuracy and legal enforceability. This is why it is very important to hire a qualified business attorney.
- Recommendation Letter
A glowing reference is what a person needs when he leaves the company. It is the key that will open several doors of opportunities for him. Hence, as an employer it is your duty to give a hardworking and enterprising employee a positive recommendation. A well-written recommendation letter will give the potential employer an idea about the new recruit. Of course, he can collect this information by calling at your company, but when it is in a written format, the value is definitely more. So while preparing a recommendation letter, make sure, it contains the following information
- Qualifications of the recruit
- An endorsement of the work performed by the employee while at your company
- The traits and skills of the employee
- Credentials and awards won by him while at the company
- Any personal qualities, like emotional intelligence, integrity, honesty, willingness to accept responsibility and so on
A few things to remember while drawing a contract
Once the contracts are drawn, it is important for both the parties to come to an agreement. There would be a discussion and it would be legally binding only when one party makes an offer and the other person accepts the terms and conditions. The new recruit can refute certain points in the contract if he feels they cannot be fulfilled. In that case, the employer will have to make a counter offer, hoping to reach an agreement with the employee. The same rule applies when you are working with a freelancer too.
It is important to have a deadline for accepting an offer made by you. If the offer doesn’t have a deadline, it would remain open. Hence, the good practice would be to add an expiration date, so the new recruit or the freelancer can mull over the points in the contract and get back to you.
Here are some things that are to be included when drawing a business contract
- The date of the contract
- The parties involved in the deal
- Details of the work to be executed
- Expiration date of the contract
- Payment amount
In case, the clauses mentioned in the contract are not fulfilled, then it is called breach of contract, incomplete services or missed deadlines, and there might be penalties for that. This would also be an important inclusion in the contract.
When putting together a legally binding business contract, it is thus important to establish the parameters of the deal. While one party will create the physical document, (usually, someone in the HR team), the clauses are prepared according to the wishes of everyone involved. Termination clauses are also to be included so if anyone breaks the contract, you will know what to do. It would also be advisable to include a passage on how to end the deal, the notice period should the employee decide to resign and the compensation that should be paid.
Once the contract is prepared, consult the lawyer to ensure you have followed all the local, state and federal laws. Your contract can now be made official.
Interesting links about the topic:
The author: Reema Oamkumar is engaged as a thought leader at Software-Developer-India.com which is a part of the YUHIRO Group. YUHIRO is a German-Indian enterprise which provides programmers to IT companies, agencies and IT departments.