When one of m clients submits an employment contract for review, I always encourage her to read through the document thoroughly, multiple times if necessary. This way, she’s as familiar as possible with the language in the contract—as well as what’s missing in comparison with what the prospective employer promised during pre-contract discussions. Familiarity with each term or section when I discuss the document with her is important.
Even after reading the legal language, it can be hard for a person who doesn’t have experience in contract drafting to identify all of the provisions that may prove essential later on—either for the way they were stated or for the fact that certain subjects were never addressed.
Here is an overview of several contractual items that may be subtle enough that they are overlooked, by both employers and employees.
When is our agreement over?
Most employment contracts are fairly clear as to when they begin (for the purpose of establishing when the associate begins being paid). The start of compensation often doesn’t matter in relation to when the contract was signed. For example, it isn’t uncommon for a new graduate to sign an employment contract before graduation, and while she may not start work until June, the rights and obligations of her contract may begin upon execution (signing) of the employment document by both parties (possibly as early as the end of the prior year). Earning money, though, doesn’t begin until work commences.
But what may be less clear is when the contract terminates. And it may not be spelled out as to whether the termination of the contract will occur—or not occur—at the same time as when the associate’s job ends. That may seem like a distinction without a difference (or just wacky legal mumbo jumbo), but consider this example:
Dr. A signed an employment agreement at Dr. O’s clinic for a one-year job beginning July 1, 2017. Everything is going great, but in December 2018, Dr. A receives a job offer from another clinic for more money and better benefits. Dr. O is totally blindsided when Dr. A tells him she will be leaving the O Clinic in 10 days.
Hey, what about the 90-day notice mandated by the employment contract?
Uh-oh! That notice obligation ended along with the contract when a full calendar year passed on June 30, 2018. Dr. A is free to go, provided that she works under circumstances that do not violate her noncompete. As for Dr. O? He needs to be more careful next time.
Issues beyond giving notice
Dr. O was more careful when he hired an associate to replace Dr. A.
He got an attorney to change the notice language but, unfortunately, neglected to modify the following employment term in the template contract he had been using faithfully since he originally typed it on his Smith Corona typewriter in 1987:
“Employee veterinarian will not compete within 10 miles of O Clinic for a period of two years after termination of this contract.”
Dr. O interviews young Dr. B and, delighted with his knowledge and demeanor, hires Dr. B to join the O Clinic team. Everything goes great and since Dr. B is making great money under the contractual production-salary formula, no one looks at the contract again until 2020. In 2020, Dr. B realizes he has the personality and ability to open his own practice—which he does—one mile from O Clinic.
Outraged, Dr. O looks at the employment contract closely. It says that Dr. B can’t leave without giving 90 days’ notice (which Dr. B is perfectly happy to do since he sees an opportunity for three good months of schmoozing O Clinic’s clients who will hopefully follow him to the all-new B Pet Hospital). But lo and behold, the contract, and its noncompete term, still terminate one year from Dr. B’s signing it. Since that was three years ago, Dr. B is no longer bound by the noncompete.
So it really stings when Dr. O fires Dr. B on the spot and Dr. B reminds him that the notice requirement swings both ways. Dr. B gave notice 90 days prior to leaving because that term in the old, slightly improved, “Dr. A” contract was repaired. Unfortunately for Dr. O, he is also required to give 90 days’ notice if he fires Dr. B for a reason other than malpractice or misbehavior.
So out walks Dr. B to his new clinic with a check in his hand for three months’ pay.
Dr. O wises up.
Dr. O finally realizes that his 30-year-old contract form needs an overhaul, so he gets some qualified advice and presents the new and improved version to recent grad Dr. C. Third time’s a charm, right?
Dr. C loves the new job and the staff! Dr. C especially likes Dr. D because they share the same practice philosophy.
Six months later, over beers at the local watering hole, Dr. D proposes to Dr. C that they should open a new clinic together, even though losing two doctors simultaneously would really hurt good old Dr. O.
“It’s not personal, it’s just business,” Dr. D tells Dr. C, and so the plan is in motion. D Hospital for Pets opens 90 days later, featuring “Drs. C and D, formerly of O Clinic.” (So say the billboards all over town.)
Dr. O is beside himself with rage. He calls his lawyer who drafted the C contract and asks how this situation could possibly not have been addressed in the new improved O Clinic employment contract form. The attorney tells him that he did address the issue. The agreement says:
“Associate will not solicit, hire or employ any of O Clinic’s employees within one year of leaving employment with O Clinic.”
Good news, no?
“Smells like a winning breach of contract lawsuit to me,” opines Dr. O.
Dr. O’s lawyer says, “Hmmm, maybe … let me have a look at your copy of Dr. D’s employment contract.”
Just as Dr. O’s attorney suspected—the D contract doesn’t have a provision regarding employee raiding. But Dr. O’s lawyer is pretty sharp (even though he wasn’t able to convince Dr. O to update all the vet contracts after he got slammed the last time). Dr. O’s attorney says, “Let me go to the secretary of state’s website and see how Dr. C fits into this new “partnership.”
Instantly the search yields the business filing of the new clinic: “D Hospital for Pets, LLC,” licensed for business with one member, Dr. D.
“So what?” Dr. O demands.
“What it means is that Dr. D solicited Dr. C, and Dr. C now works for him outside of both the Dr. C and Dr. D non-compete radii,” the lawyer says. “Your C contract keeps Dr. C from soliciting Dr. D. But Dr. D can solicit anyone he pleases from your clinic.”
That’s when the distraught Dr. O gets a text message from his office manager. It seems that both receptionists, an LVT and one part-time kennel attendant all just gave their notices. They plan to go to work at that beautiful new clinic opening on the other side of town—the D Hospital for Pets.
Dr. O leaves the lawyer’s office and heads for the bar. The bartender is sympathetic. He says, “Doc, you know it was a conspiracy between Dr. C and Dr. D … maybe even Dr. C’s idea.”
But law-weary Dr. O knows in his heart there’s no way to prove who said what to whom. The only thing he knows for sure is that his lawyer said years ago, “You need a new contract for all your doctors.”