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Contract Your Way Through The Hiring Minefield

You hear it, and you know it instinctively: Hiring people is a big decision. Your relationship with employees–and even prospective employees–is a minefield of laws, regulations and emotions that makes you cringe whenever you face the need to hire. So there is an enormous amount written about it. At the end of this post are links to just a few of the volumes of articles written on this topic only recently.

But I propose that there is an approach to hiring that can put your mind more at ease: View hiring from a strictly contractual viewpoint.

What do you do when you deal with a third party, such as a supplier or customer or a company you’re buying or when you sell your own company? You probably leave nothing to chance. You negotiate a deal, allocate risks, and lock up everything in a written document that lets everyone know what their rights and responsibilities are to make the deal go through.

Compare this to the situation when you hire someone. Perhaps you consider yourself diligent. You determine your need for people, write job descriptions, conduct interviews, and check references. Then you probably write a carefully worded one-page offer letter that is woefully inadequate. The result is that the vast majority of issues and concerns (both yours and the employee’s) are left unsaid, un-negotiated, and are addressed by default laws with which you and the employee are unfamiliar. So you must learn the rules of at will employment; what effect does an employee handbook have; what actions or conditions constitute “just cause” termination; will a profit sharing plan be regarded as vested property…. BOOM! You can almost hear the minefield exploding.

So why don’t you have detailed written contracts with your employees, even with non-union employees. Is it because the relationship is too personal? All the more reason you should not leave that important relationship to chance or court interpretation. But how do you do it?

Start by listing what is important to each of you. Get it all out in the open. Talk to the prospective employee and determine the baseline concerns each of you has and put that in the recitals of your contract with that employee. For example, you might want a worker who is productive and loyal to you, but with the freedom to let him go if he can’t get along with you or other employees, or if business turns bad, or his skill are no longer needed. The prospective employee might want interesting work, good pay and benefits and the possibility of enjoying some of the upside if the company succeeds, plus a commitment from you to keep him as long as he wants to work. But he also wants to be able to leave any time he gets a better offer. Some of this may sound harsh and contradictory, but it’s better to be stated than assumed to be true or not.

Then using the recitals as a starting point, draft the rights and responsibilities you want to have with each other. When you talk about these things, you’ll learn more about how compatible your interests are, and you’ll negotiate a contact that is right for the two of you.

Some of you may be worried about scalability. How can you have individual contracts with hundreds or even dozens of employees? Don’t worry, as you grow you will find commonality among the people who are right for your organization. Your individual employee contracts will all start to look the same and you’ll be able to standardize them.

Of course there are legal constraints on what bargains you can reach with employees. To protect yourself, you really should consult a lawyer or read a bunch of legal books on the topic. But the important point is that once you start formalizing your employee relationships, the backbone of your employee contracts will reflect the specific relationship you have with your employees, not all the generic default rules provided by state and federal laws, regulations, and court decisions. And you’ll sleep easier when (or the next time) you hire someone.

A search on employment law will produce enough literature to keep you busy reading for quite a while. Here is just a sampling of recent articles that you might want to peruse when you have time:

One writer’s “Five Things You Need To Know” before hiring

https://www.huffingtonpost.com/2011/06/09/hiring-your-first-employee-5-things_n_914970.html?ref=smallbusiness-tools

The trap of misclassifying employees as “freelancers”

https://www.marketwatch.com/story/irs-offers-break-to-employers-who-hire-freelancers-2011-10-07?pagenumber=2

https://www.irs.gov/businesses/small/article/0,,id=99921,00.html

Problems associated with sharing profits and equity with employees

https://www.inc.com/ben-orlanski/equity-clawbacks-how-to-avoid-a-zynga-situation.html

Hiring interns

https://www.huffingtonpost.com/2011/04/19/hiring-unpaid-interns-5-things_n_915024.html?ref=smallbusiness-tools

Please read, use, and comment on what you find here, but remember this: Random advice, even the advice you find at Argent Place, cannot supplant the personal legal advice you receive from your own legal counsel.

If you agree that Personal Legal Counsel could help you create more wealth, please contact Argent Place Advisors to have an exploratory conversation.

© 2011 Argent Place Advisors, LLC

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