Author: Daniel A. Lublin
Do they still matter?
Do contracts really matter or are they irrelevant? In the often confusing world of workplace law, why are some agreements upheld, when many others are simply overlooked? The answer depends on the purpose that the contract is meant to serve.
Independent contractor agreements: It usually will not matter that workers have signed agreements confirming that they are not employees. Employers, happy to unburden themselves from various costs and liabilities associated with employees, increasingly retain “contractors” to perform the same services their employees did before. Often, those same employees are seamlessly turned into contractors. And the former employees, content to pay their own taxes, are not about to complain. When this characterization is challenged, sometimes many years later, courts are apt to find the workers were truly employees. No surprise there. The contract represented little else than a “label.” Seldom will this be sufficient.
Post-employment restrictions: Many contracts contain broad restrictions preventing workers from competing with their former employers or soliciting their old clients following their departure. In certain cases, such as where an employer is vulnerable to an ex-employee, such agreements can stick. But in many others, they will easily be struck down. This is because employers often take a kitchen sink approach to drafting employment contracts. They bargain for excessive protection, no matter how junior or administrative the employee. Clients will not usually follow a junior employee, so a clause restricting that employee from competing with his former employer is not likely reasonable. According to a recent case, restrictive covenants are only enforceable “if reasonable between the parties and with reference to the public interest.” In general, the more one-sided a non-solicitation or non-competition agreement, the less likely a court will respect it.
Policy manuals: In one recent case, the employer argued that since the employee had not reported harassment as she was required to under the company’s policy manual, the company could not take any steps to address it. As a result, it argued, it was the employee who had breached the employment relationship, not the harasser. The court easily dismissed this notion. Although terms in a policy manual can sometimes operate as conditions of an employee’s job, those terms must be reasonable or they will not be upheld.
Termination clauses: Similarly, contractual language surrounding termination is often challenged. This is because even without a contract, there is an implied right to reasonable treatment upon termination. Why would anyone agree to anything less? Seldom do employees negotiate contracts on the same footing as their employer. Therefore, courts have developed a number of tests. If the contract is ambiguous, fails to respect statutory standards or is executed under duress, it will be set aside.