Michigan is an at will employment state, meaning that employers are able to terminate employees at any time, for any reason; employees are also free to leave at any time and without notice. However, an employment contract adds obligations for employees and employers alike; while they do away with the “at will” component implicit in contract-less employee-employer relations, they can specify the specific job duties that an employee must perform as well as what constitutes terminable offenses.
There are a variety of situations where an employment contract makes sense, including when a company wants to protect trade secrets, incentivize employees stay on after the merger or sale of an organization, or ensure that an employee provides reasonable notice before leaving. Arbitration clauses can outline how employee disputes are handled, and these agreements can be drafted to be evergreen, meaning that they renew yearly unless notice is given by either side.
However, employers are generally also required to provide incentives for people to agree to these terms, and they often include being given severance packages or only being terminated for certain causes. Additionally, while non-compete agreements can be included, which prevent employees from working for competing companies or doing business with existing clients, they must be reasonable to be enforced. This usually means only limiting individuals from working for competitors for a certain period of time, such as a few years, or requiring that they not work for a competitor that is within a certain distance of the company.
Employment contracts can enable businesses to protect themselves from competitors poaching talented employees, but they can also restrict a company’s ability to terminate poorly performing employees. A business and commercial law attorney may be able to explain the pros and cons of these contracts and assist an employer with drafting a sound employment contract.
Source: Entrepreneur, “Employment Contract“, September 26, 2014