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JOB CITES: Carefully draft ‘cause’ provisions in employment contracts

Contrary to popular belief in some circles, employment contracts are generally not a bad idea. If drafted properly, they give employees extra job security and employers a tool in which to set contractually based standards on employment, such as, but not limited to, setting the duration of employment for highly skilled and sought-after talent. While there are many advantages to entering into an employment contract, there are also several drawbacks. These drawbacks are often amplified in poorly drafted contracts.

By default, employment is presumed to be at-will and can be terminated at any time and for any legal reason, or for no reason at all. Generally, this presumption can only be rebutted by a clear statement of the parties’ intention to do so. Most employment contracts, by their very nature, alter this at-will nature of employment and place limits on both the employee’s and employer’s ability to end the employment relationship. For employers, the limitation on the ability to terminate is often where the greatest drawbacks to employment contracts are found. For instance, many employment contracts allow for the discharge of an employee for cause, which is often defined as poor performance and insubordination. If business needs change that make the employee’s position no longer necessary, the employer is not free to terminate the employment relationship without breaching the contract or the covenant to act in good faith and fair dealings. Similarly, if the employee engages in misconduct or inappropriate conduct which cannot be tied to performance, insubordination or another condition of “cause” to terminate, the employer is not free to end the employment relationship without the potential of exposing itself to liability. For these reasons, contracts should be drafted with an eye towards giving employers sufficient latitude to terminate.

So, how then can this be accomplished? One way would be to broadly define, where appropriate, events of cause to terminate. General catch-all provisions typically work. An example of this would be including, as an event of cause to terminate, conduct that is “unbefitting of a company representative,” or words to that effect. Please note here, though, that Wisconsin expressly prohibits discrimination on the basis of arrest or conviction records. Generally, the arrest or conviction must be substantially related to the position at issue before an adverse employment action can be taken against the applicant or employee. Language in your employment contract should not run counter to this.

Another possible idea may be to work into the contract conditions outside of the employee’s control that allow the employer to terminate the employment relationship. An example of such a condition could be quantifiable changes in business needs or conditions, such as the loss of significant business, the closure of a department or group, or significant changes in the upper management or the direction of the company.

At the end of the day, what goes into an employment contract to provide more flexibility to terminate employees will be based on individual needs and circumstances. Note, though, that the more control/flexibility you ask for, the more money and benefits the prospective employee may demand. While there is much good that can come out of employment contracts, greater pain and headaches can ensue if a contract is not carefully prepared.

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