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Common Problems With Employment Contracts

Commercial & Corporate Law

updated:
5.20.22
invalid employment contract

Employment contracts are among the most important of all business documents. They are also among the most difficult to draft correctly. Employment contract legal issues are frequently hidden. They can intersect with employment-related legal issues to affect you for years after an employee resigns (an invalid non-compete clause, for example). A business lawyer can help you draft a sound employment contract.

Quick Overview of Contract Types

The three primary types of employment contracts are written, oral, and implied. A court may end up determining the terms of oral and implied contracts; and in certain cases, even written contracts are vulnerable to inappropriate judicial interpretation. 

Written Contracts

The nature of a written employment contract is self-explanatory. The trick is drafting them correctly. It is virtually impossible to enforce a complex employment relationship without a written employment contract because oral terms are difficult to prove unless they are clearly stated in writing.

Oral Contracts

Some people are surprised to learn that oral contracts are valid under most circumstances. Nevertheless, they are usually not a good idea. Although Colorado courts usually allow litigating parties to try to prove the terms of an oral contract, the process is difficult.

Implied Contracts

An implied contract is something that an employee might try to prove in court after the employment relationship ends. The terms of an implied contract can include written materials (emails, etc.) as well as employer actions. Litigating an implied contract can get complex, and the results are uncertain.

Employment Contract Terms

contract legal issues

Generally, an employment contract should include the following terms:

  • The duration of the employment relationship;
  • A thorough but flexible job description;
  • Salary and benefits;
  • A non-compete clause, to the extent permitted by law (this clause protects the employer, but Colorado law allows them only under limited circumstances);
  • Trade secret protections based on Colorado and federal trade secret law;
  • Employer ownership of the employee-generated intellectual property; and
  • Dispute resolution methods.

Many other terms might be necessary, depending on your particular circumstances.

Problems with Employment Contracts

A contract is a way of deciding how to deal with potential problems before they arise. This is a job that you must do correctly, however. Following is a list of common legal problems associated with badly drafted or nonexistent employment contracts. 

Lack of a Written Employment Contract

The Colorado statute of Frauds voids every oral agreement that “by the terms is not to be performed within one year after the making thereof…” Accordingly, an oral employment contract with a term of over one year is void under Colorado law.

Even an oral contract with a shorter term might be invalid if the parties cannot prove certain basic terms, such as salary. Courts will not allow employers to entirely evade financial obligations, however, by failing to write a valid employment contract.

Out-of-Date Employment Contracts

An employment contract can become out of date in two primary ways:

  • Failure to keep up with changing circumstances; and
  • Failure to keep up with changing business law.

In a worst-case scenario, your business could open itself up to overwhelming liability by failing to update your employment contracts. 

Inclusion of Irrelevant Information

contract law issues

Including irrelevant information can raise many employment-related legal issues, especially if the irrelevant information causes a misinterpretation of contractual terms. This problem arises most frequently when the employer tries to save money on legal expenses by using an online template that contains obscure legal terminology or information not relevant to that particular employee or position. Don’t insert any more information than necessary into an employment contract.

Unclear Wording

Unclear wording can raise a multitude of contract law issues. These problems could spell disaster in an employment relationship when each party attaches a different meaning to an ambiguous text. Unclear wording also invites an opposing party to deliberately misinterpret your meaning. Ultimately unclear wording can force a court to make decisions that company executives should be making. 

Wordiness

The more words you use to express the same meaning, the greater the chance that your meaning will be misinterpreted. Contractual wordiness can result in the following problems:

  • Lack of clarity, which is an invitation to litigation;
  • Ambiguity, which an opposing party can use against you;
  • The inclusion of unintended restrictions, thereby limiting your freedom of action unnecessarily; and
  • The uncertainty can throw the outcome of a dispute into doubt.

An experienced business lawyer can help you draft a tight, concise employment contract.

Inconsistencies

Inconsistencies in an employment contract can be blatant, or they can be so subtle that only a lawyer will catch them. Inconsistent terms in a contract can result in a nearly impossible situation for the parties. In many cases, the parties must either amend the contract (which is difficult to do once a dispute arises) or go to court. Inconsistencies can affect employment contract enforceability in a manner that harms the employer’s interests.

Conclusion

A well-drafted employment contract should be clear, easy to read, free of legal jargon wherever possible, and concise. Both parties should understand its terms before they sign it. A well-drafted employment contract can keep you out of court and arbitration. It can also clarify expectations.

Drafting a contract is a job for a legal professional because even a small error could result in damaging consequences. Even if you prefer to draft your employment contract yourself, or if the other side drafted it, be sure to have a Denver business attorney look it over before you sign it. Contact Sequoia Legal by calling at 303-993-0932 or by contacting us online for a free consultation.

Hunter Boone

Hunter has been a part of the Sequoia Legal team since 2017.  Hunter specializes in general corporate matters, healthcare compliance, international trade laws, and anti-kickback regulations.

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