Sometimes businesses over complicate things for themselves. How? By using employment agreements and policies that may seem OK to a layperson but that make employment lawyers blanch. Or swear. Or shake their fists at the sky screaming, “Why, Lord, Why?!”
Every business is different — but the majority of employers would benefit from spending time with their legal counsel to review their basic employment documents. These documents are what I call “The Fantastic Four”.
Employee Handbook – Handbooks provide employers with excellent protection —if they are properly drafted (poorly drafted handbooks are a gift — i.e. a new vacation home on your company’s dime– for employees and their attorneys). Well crafted handbooks give your business certain defenses to harassment and discrimination and wage claims that it otherwise wouldn’t have. Handbooks set clear boundaries for issues that Maryland law leaves to an employer’s discretion (i.e. whether an employee has a right to view his or her personnel file, whether the employer pays severance pay, whether the employer pays out accrued and unused vacation pay, social media rules, etc.). In short, the handbook is like the “stern parent” and business owners will find that “I’m sorry, but it’s in the handbook” is the workplace equivalent of, “Because I said so”. Referring to the handbook ends the issue. On top of that, the Equal Employment Opportunity Commission, the courts, and jurors, look unfavorably on businesses that do not have a handbook — and since those are the groups that decide your fate in a lawsuit, that’s not a good thing.
Form Offer Letter – When on-boarding new employees, businesses often make two classic mistakes. The first is laying out the non-salary employment benefits in the offer letter. Yes, I consider that a mistake. If your business has a well-drafted handbook, it will usually have the benefits listed in it (together with a caveat that the benefits can be changed at the employer’s discretion at any time). Incorporate the benefits by reference to the handbook in the offer letter. This is one of my cardinal rules — if an employment policy exists, do everything in your power not to ever restate it in writing. Never restate. Refer. Better yet, refer and attach a copy of the policy to which you are referring. When a business attempts to restate a benefit in an offer letter, it sometimes varies the benefit terms slightly (either on purpose or by mistake). This causes two problems: (i) it dilutes the clarity of a clean well-drafted policy thereby creating the opportunity for disagreement about the precise nature of the benefit; and/or (ii) it creates a scenario in which a business has similarly situated employees with slightly varied benefits — an administrative nightmare and potential discrimination issue. All of this can be avoided by a clean offer letter stating the basics specific to the job offered (i.e. job title, salary, start date, a statement that the employment is “at will”, signature line for acceptance, etc.) together with a statement incorporating the benefits in the handbook by reference. The second mistake that businesses make during on-boarding is giving term contracts to employees that should be employed on an “at will” basis. In my opinion, all employees should be “at will” unless there is a really good reason why your business should commit to that employee for a term.
Restrictive Covenant Agreement (RCA) – RCAs can include non-compete, non-solicitation, and confidentiality agreements. RCAs aren’t right for every business and they aren’t right for every employee of a business that uses them. Properly drafted RCAs don’t overreach –that way they are obviously enforceable (and therefore much more effective). RCAs shouldn’t be in a handbook. RCAs are best when delivered as a stand-alone document that is provided to a job applicant, together with the offer letter, to be reviewed and executed prior to the start of employment.
Commission Policies– Commissions are a frequent source of employment litigation. Often times, this is because the commission policy does not make clear when the employee has officially earned the commission. When the time of vesting isn’t clear, all work “in the pipeline” of a departing salesperson is the source of dispute and potential litigation — particularly when the salesperson departs in the middle of a commission period. Under Maryland law, if the employer does not pay commissions that are later deemed to have been earned, the employee can be awarded three times the commissions due plus attorney’s fees. Having a well-written commission policy that makes clear when commissions are earned is the best defense against commission claims. For most businesses, I recommend that the commission policy(ies) are not included in offer letters or handbooks or with RCAs. This is to give your business the maximum flexibility to change the commission policy as needed (though Maryland companies can never change commission plans retroactively or without at least one pay period of advance notice — unless the change would increase the compensation to the employee).
Again, not all employers can or should be treated alike. But most employers would benefit from a review and streamlining of their employment documents to ensure that the documents work together — working for your business rather than against it.