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Is my employment contract void if I’m reclassified as a contractor?

If you are being reclassified as an independent contractor after working as an employee, your employment agreement may be void – but not entirely.

The employment agreement can provide that certain clauses “survive” upon termination. This means is that the employee will remain bound by those specific obligations, even if the rest of the agreement has been terminated.

Assuming you weren’t in a unionized position covered by a collective agreement, in order to comply with applicable employment standards laws (such as Ontario’s Employment Standards Act) your employer likely terminated your employment contract with the required notice (or payment in lieu of notice), and then offered you a contract as an independent contractor. That contract could include many of the same responsibilities, obligations and terms as the previous employment contract, so that it would seem the same as the employment contract. But, your obligations would actually be governed by the new contractor/consultant contract, and not the previous employment contract.

 

(Note that this blog cannot consider the question of whether your employer breached the terms of your employment agreement, or their obligations under an applicable laws. Those are questions for an employment law expert!)

 

Source

 

Survivability of Clauses

After your employment agreement has been terminated, you may still be bound to specific obligations for a defined period of time. These specific obligations would be designated in your employment contract to “survive upon termination” or to be “survivable”. Employers may choose many different clauses to be survivable but there are a few common ones that you can look out for.

 

(i) Non-Disclosure and Non-Solicitation Clauses

If your employment agreement contained a confidentiality (or non-disclosure) clause, or a non-solicitation clause, it is likely to have been included among those clauses that will survive the termination of your agreement. It is also likely that your contractor agreement will contain the same type of clause, and that it will also survive the termination of the contractor agreement.

(ii) Non-Competition Clauses

Another example of a clause that commonly survives the termination of an employment contract is a non-competition clause. Non-competition clauses provide restrictions on how you can compete with your employer, both during and after your term of employment, and must have reasonable limitations with respect to  time, geography, and scope of activities in order to be enforceable. Again, if such a clause was included in your employment agreement and survived its termination, the same type of clause is likely to have been included in your contractor agreement.

 

(iii) Stock Options

If you received other benefits, eg. stock options, under your employment contract, you will have to obtain copies of the stock option plan and your individual stock option grant to determine if you will continue to have rights under those agreements. If you are unclear about your rights, it would be prudent to contact an employment law expert.

 

 Source

 

Change of Status Implications

The change in your status from employee to independent contractor has additional implications that you should be aware of. Some of these changes may be noted in your independent contractor agreement. Changes include compensation, tax treatment, and benefits. Another change would be in status. For example, independent contractors are considered self-employed, which means that any provincial employment laws (applicable to employees) wouldn’t apply to you as an independent contractor, but you may qualify to deduct certain expenses from your income that were not deductible as an employee.

 

This blog was co-authored by Vi Vo.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Does the improper disclosure of confidential information always result in damages?

MISUSE OF CONFIDENTIAL INFORMATION DID NOT RESULT IN DAMAGES

Edac Inc. v. Tullo 1999 CanLII 14868 (ON SC)

Before resigning from his senior management employment position with the plaintiff, an employee disclosed confidential information to a third party during a written job interview. The employee then took an employment position with a former supplier of the plaintiff, and began arranging sales to the plaintiff’s customers. The court held that the employee had both a common law and contractual obligation of confidentiality. However, the improper disclosure of confidential information caused no actual harm, and in the absence of a non-competition restriction, the employee made no improper use of the customer lists.

Drafters acting for a disclosing party need to ensure that specific types of information are defined as confidential (e.g. customer lists), regardless of whether they are marked or treated as confidential. If the confidentiality agreement is ambiguous, the confidentiality of the information may depend on a subsequent finding of fact about whether the information was treated as confidential in a such way that the information was clearly considered to be confidential. Confidentiality restrictions are not sufficient by themselves to prevent an employee from competing with a former employer.

Details of the case:

In Edac Inc. v. Tullo, 1999 CanLII 14868 (ON SC), the plaintiff alleged that the defendant improperly used confidential information in breach of his contractual and common law duties. The employment contract provided that: In the course of your employment, you will become aware of confidential information about the Company that is not available in the public domain. By accepting this offer of employment, you will be bound to keep this information confidential and you will not reveal this information to third parties without the consent of the Company, either during or after your employment with the Company. The employee resigned and began working for a supplier of the employer, selling products to the clients of the former employer. Before resigning, the employee disclosed confidential information to a third party, as part of an unsuccessful employment application. The court held that there had been no damage caused by this breach of confidentiality. As for the client lists, the employee began by selling products not sold by the former employer. It was the clients themselves who requested sales of the same products sold by the former employee. In the absence of a non-competition clause the court held that the employee did not breach the confidentiality clause in the circumstances. The client lists could be discovered by the employee’s new employer, and he had not made improper use of the information.

Much of the court’s attention was focused on whether specific information was in the public domain. The court found that the prices and names of customers were commonly used in the course of business. “It is not clear to me that a company can claim that information is confidential where it is known to one segment of the market and not to others. Once the information has gotten into the public domain in any respect, it seems to me by definition to no longer be capable of being labeled confidential.” The court similarly ruled that the even if the information was confidential, there is no evidence it was used by the defendant. On the common law test for breach of confidence there has to be a misuse of confidential information and there has to be corresponding detriment. The court did not find that there was any detriment from the information that the defendant used. Thus, there was no breach of confidentially according to the court. The plaintiff similarly failed on his other claim for breach of the contractual confidentiality obligation.

To read the full case on CanLII, click here.

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Is it legal for a company to ask an employee to sign an NDA after the employee has started working?

Today’s job market is tough, so when an employment opportunity presents itself, many jump at the chance and take the job. You might notice that the offer letter you accepted in lieu of a full-fledged employment agreement (which, along with other documents, you were promised would be delivered soon) may include terms which are different from those included in the contract itself. Usually that’s not an issue for employees – you have a job now! You can clarify what the contract terms are, and sign it so you can start getting paid!

 

But suppose you have started work and the employer now requires you to sign an additional contract, like a confidentiality agreement or non-disclosure agreement (NDA). You don’t want to lose your job, so you will likely sign. Will you be bound by this NDA? The answer is both yes and no – it depends on whether there has been fresh consideration for the new contract.

 

Offer, acceptance, and consideration

A contract is legally binding if it is composed of three parts: an offer of a contract from one party to the other; an acceptance by the other party of those terms; and consideration, something of value that each party has and will exchange with one another (e.g., money, services, promises).

 

Fresh Consideration  

When an employee is presented with a new set of terms or a new agreement, it is not considered to be enforceable unless consideration is present. But the courts have held that that consideration cannot be the same as previously offered or given—it has to be more, and this is called “fresh consideration.”

 

The Ontario Court of Appeal recently considered the question, in Holland v. Hostopia Inc. (2015) (ONCA). The court stated that simply keeping the job you are entitled to keep is not fresh consideration that will support the signing of another contract (like an NDA). On the other hand, not being dismissed when you could legally be dismissed will be fresh consideration. Whether the employer can require you to sign the new contract as a condition of keeping your employment may depend on whether you could have been legally ‘let go’ even if you did not sign the new contract.

 

What will count as fresh consideration? Continuing in a job when the employer was entitled to let you go is fresh consideration. Offering a bonus can be fresh consideration (even if the bonus is a modest amount). Some other forms of fresh consideration can include “an increase of vacation pay, notice requirements, life insurance, severance pay, or health and dental benefits.” Note that any one of these things by itself could be sufficient to be considered to be fresh consideration. 

Source

No Consideration

Employers are sometimes tempted to avoid the need for fresh consideration by including the following sort of clause: “The party affirms that the terms stated herein are the only consideration for signing this Agreement and that no other representations, promises, or agreements of any kind have been made by any person or entity to cause them to sign this Agreement.

The party affirms that this consideration is sufficient. The party has accepted the terms of this Agreement because they believe them to be fair and reasonable for no other reason.”

 

If you are an employer who wants to have an existing employee sign another contract, be wary of relying on such clauses… the courts will look at whether you actually gave something new to the employee as fresh consideration in exchange for signing the contract.

 

So, is it legal to ask an employee to sign an NDA after the employee has started working? Yes, and no! When drafting the employment agreement, it is wise to include a clause requiring the employee to execute such further documents and agreements as the employer deems reasonably necessary – and then, when they sign those documents, remember to give some fresh consideration with the agreement.

 

To see standard versions of the various agreements and contracts discussed in this article, visit our Small Business Law Library!

 

This blog was co-written by Alina Butt.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Overview of Employment Agreement

Overview of Employment Agreement

 

What is this document?

An Employment Agreement is used to establish the relationship between an employer and an existing or new employee. It includes the obligations of both parties.  

 

When would I use this document?

This document could be used either for a new employee or to change the terms of an existing employer/employee relationship.  

 

Who signs this document?

Employment Agreements are signed by the new or existing employee and an individual with authority to bind the employer to the agreement. The Employment Agreement should be signed after the employee has had a chance to look it over, and before the employee begins work.

 

More details about this document

Employment Agreements can range in length and complexity depending on the context it is drafted for. An employee will sign an Employment Agreement when starting a new position with an employer, and then periodically when the terms of their employment relationship evolve over time (eg. changes in position, compensation, vacation benefits, stock options, etc.).

Employment Agreements often refer to company policies or benefits plans.

 

What are the core elements of this document?

The core elements include: parties, duties and responsibilities, reporting line (who employee reports to), compensation and benefits, reimbursements and allowances, work hours/schedule, annual leave allowed, benefits, performance reviews, settlement of disagreements, termination clause, non-solicitation and non-competition clauses, limitation of employee activities, and intellectual property and confidentiality clauses.

Some examples of additional clauses include ownership of intellectual property, non-disparagement, terms of departure, limitation of liability, employee stock option plan, return of employer property and indemnification of the employee.

 

Related Documents

Nondisclosure/Confidentiality Agreement – an agreement that protects confidential information

Contractor/Consulting/Services Agreement – this type of agreement can have various names, and is used when a person is paid to provide services but is not hired as an employee. Payment can be flexible eg. money, shares or some other form of compensation.

Intellectual Property Transfer, Assignment and Release – an agreement that transfers the intellectual property from one person to another eg. from a consultant/contractor or employee to the person who ‘hired’ the consultant/contractor or employee

Workplace Harassment Policy – this policy deals with harassment in the workplace

Romantic Relations in the Workplace Policy – this policy deals with romantic relations in the workplace

Drug and Alcohol Policy – this policy deals with drug and alcohol use in the workplace and the procedures to follow if unauthorized use is suspected

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Are All Arbitration Provisions in an Employment Agreement Enforceable?

Whether a particular arbitration clause will be enforceable depends on the way in which the clause is drafted. Generally speaking, if (i) the clause is clear, (ii) arbitration is made mandatory, and (iii) the contract can otherwise be enforced, the arbitration clause will be enforceable.

 

Source

 

Arbitration Provisions

It’s best to start with a brief rundown of what arbitration provisions should include. A basic arbitration clause will be an agreement between the parties to use arbitration instead of the courts in the event of a dispute. The clause should be broad enough to cover all types of disputes and questions of interpretation of the contract. If the clause is not broadly worded, one of the parties could argue that the particular dispute was not within the scope of the arbitration clause.

 

The clause should either specify the following details, or incorporate a set of arbitration rules that provide for such details as:

  • how many arbitrators will be chosen to decide the matter;
  • how an arbitrator is to be chosen (both parties must agree upon someone, and if they are unable to reach a decision within a specified time frame, a mechanism must be in place for the choice of an arbitrator);
  • the rules of the arbitration process (there are many standard sets that can be referenced—for example, see the ADR Institute of Canada’s Arbitration Rules);
  • the seat or location where the arbitration will take place;
  • the language to be used during the arbitration process; and
  • the applicable governing law and jurisdiction.

 

Check out Clausehound.com for sample arbitration clause language!

 

Unenforceable Arbitration Clauses

There are two main reasons why courts have held arbitration clause to be unenforceable – bad drafting and matters of public policy.

 

 

Bad drafting

If the arbitration clause creates too many ambiguities, or if arbitration is not clearly mandatory, the  bad drafting of provisions may cause the clause to be unenforceable.

There are a few main areas of concern that have been identified by the courts:

  • The arbitration process and procedure should either be written with great detail to avoid the possibility of either party claiming their obligations were unclear, or reference should be made to a recognised set of arbitration rules which themselves contain this detail.
  • To convey obligation and enforceability, mandatory language should be used in the provisions instead of optional language (for example, using “shall” or “must” instead of “may”).
  • Time periods need to be specified (in the contract or in a set of arbitration rules) for when notice of arbitration should be given, how much time is to be given at each step of the arbitration process, and by when the process should be completed and a decision given.

 

 

Public policy

Sometimes an arbitration clause can run afoul of public policy. This has been especially true in the United States, notably in situations where there is a great inequality of bargaining power between the parties to the contract.

 

One concern expressed by American commentators relates to the cost-effectiveness of arbitration. An examination of case law by Wigdor LLP in New York discussed how arbitration provisions can be invalidated if the costs involved are excessive in a way that “could preclude a litigant from effectively vindicating [his or her] federal statutory rights in the arbitral forum.”

 

Another point of growing concern relates to how arbitration can create, as National magazine puts it, “an alternate system of justice” that more often than not rules in the company’s favor and leaves litigants feeling like they have not rightfully received their day in court.

 

To see standard employment agreements and arbitration provisions, visit our Small Business Law Library!

 

This article was co-authored by Alina Butt.

 

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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What legal rights do I have where an employer promised shares but did not deliver?

Trust is a big part of any deal, and  a situation where you’ve been hired and promised shares but never received any is a major breach of that trust. But does that trust translate into something legally binding, that when broken, gives you options for legal action?

 

The answer is in the details. When you say an employer has “promised” an employee shares, that can mean a few different things. If a verbal or oral agreement was made, it can be difficult to prove, even if it would otherwise be legally binding. If the shares were promised in a written agreement but never delivered, it can be much easier to force the employer to make good on the promise.


 

Verbal promises

Whether or not a verbal agreement is legally binding and enforceable depends on a number of important facts.

 

First and foremost is an employee’s ability to prove that a verbal agreement took place. This will require trustworthy testimony, and a clear reference to it in emails, messages, documents, journals, and so forth can be especially helpful. In cases like Druet v. Girouard (2012) (NBCA), email strings were accepted as verification of consent even when the electronic signatures themselves were disputed for not being totally accurate reflections of a person’s written signature. Supporting evidence lends weight, so don’t underestimate the importance of sifting through those emails!

 

Once the verbal exchange is proven to have taken place, the question becomes whether the elements of a binding agreement are present: an offer, acceptance, and consideration. That means there should be an identifiable exchange of something for the promise made, like money, or agreeing to accept a job in exchange for the promise of shares, to make the promise legally enforceable.

 

In the case of Fedel v. Tan (2010) (ONCA), Tan and Fedel started a new business together. They verbally agreed that Fedel would retain 60% ownership for organizing and administering the business, while Tan would retain 40% ownership for his financial involvement. Upon incorporation, Fedel received 100% of the shares issued, and Tan received none.Tan sued, and the judge looked at Tan and Fedel’s shared business history to determine that Tan had been entitled to 40% of the company. However, the judge decided against issuing shares to Tan. Because the business relationship between Tan and Fedel had been irreparably harmed by the dispute, ownership of shares in a closely held corporation would no longer have been a satisfactory result. The remedy instead was compensation.

 

So if you are entitled to shares, and can prove it, a court will still look at the particular circumstances to decide what the appropriate remedy will be, and this may not be the promised shares.

 

 

Written promises

If your employment agreement contains a provision entitling you to a particular number of shares at a particular point in time and you do not receive those shares, you may be able to bring an application in court to compel the employer to transfer the shares to you according to the terms of the employment contract.

Of course, this will not enhance the quality of your relationship with your employer! You are better off trying to use friendly channels to obtain the shares.

 

Stock Restriction Agreements

Before doing so however, you will need to look into the details of the contract. Often, employees or contractors will sign a stock restriction agreement. This contract usually provides that you are entitled to a certain number of shares that will vest over a period of time, for example X number of shares on July 20 each year, or X number of shares on the last day of each month. Until the shares have vested they are ‘restricted.’ Restricted shares can usually be redeemed (bought back) by the company at a very low price if your contract with the company is terminated, or if other trigger events take place (e.g., you are convicted of certain types of crimes). Often you are not entitled to vote restricted shares, and you may not be entitled to any dividends that have been declared. If you are terminated, you will not have a right to the promised shares if they have not yet vested.

 

Source

 

Employee Stock Option Plans

Another common way for employees to believe they have been promised shares is under an Employee Stock Option Plan (ESOP). Your contract may entitle you to a certain number of options per year, or you may only be eligible to receive options if the directors use their discretion to grant options to you in any given year. It is important to check the fine print of the plan to determine what you are entitled to.

 

Once you have been granted options you will be able to exercise them to purchase shares at a set price. You will likely only exercise this option if the share value is at or above the purchase price. Note that the options will have an expiry date and many plans will specify that the company has the right, but not the obligation, to buy back any shares purchased under an ESOP if the employee’s contract is terminated for any reason.

 

To see standard versions of the agreements discussed in this article, visit our Small Business Law Library!

This blog was co-written by Alina Butt.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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As a Programmer, Are You Committing Intellectual Property Theft by Abstracting Ideas Learned at Work Into a SaaS Product?

In this day and age, technology is taking over every aspect of our lives. Ideas developed for one area can be modified with ease and adopted in another area. If you are starting your own business, you need to protect your intellectual property to avoid someone else using your hard work in a different market. But what if you come up with an idea while working on a different project?

 

 

What is intellectual property theft?

Intellectual property theft is the stealing of creative ideas. In the area of start-up businesses, intellectual property is a huge concern. After all, you are dealing with new ideas in its early stages with significant progress to be made. As a programmer, you come across new ideas all the time, which may inspire some ideas of your own. The challenge is making sure that you aren’t taking anything that is not yours. The line between committing intellectual property theft and the creation of new ideas is not always clear, but the agreements you have signed as a developer may give you some clues about where to draw the line.

Source

 

Master Service Agreement

Start with the Master Service Agreement. If you are performing work for someone, your specific tasks, duties, and obligations should be clearly outlined. A well drafted Master Service Agreement will define your intellectual property rights as of before the work begins with the developer, while the work is in progress, and after the work is completed. These definitions are extremely important and often hotly negotiated, as is the ownership of these types of intellectual property. You may wish to make sure that the definition of client confidential information is not so broad that it includes all ideas developed during the term of the agreement.

 

Click here to see Clausehound’s Master Service Agreement!

 

 

Employment Agreement

If you are an employee, the rights you have as a developer may be a bit more limited.

Most employment contracts will contain language which requires you to transfer all rights to intellectual property created during the course of your employment. Some agreements allow employees to develop ideas independently, if they are developed outside of work time and without the use of employer intellectual property or confidential information.

 

Click here to see Clausehound’s Employment Agreement!

 

Under the Copyrights Act, if the work is created in the course of employment under a contract of service, then the employer will be the owner of the copyright in the work created by the employee. What this means is that you cannot retain any rights to work created during the course of your employment if you do not have an agreement that allows you to retain that right. Copyright includes artistic work but may be much broader and can include work related to technology.

 

Under the Patent Act, courts have decided that the employee will retain ownership pursuant to two exceptions. First, if you are “hired to invent”, which means hired for the purpose of creating ideas for your employer, then you would not be able to claim those ideas as your own. Your employer retains those rights and any ideas that you have. The second exception allows the employer to obtain the rights if you transfer those rights to the employer in an agreement.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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How Can I Prevent Employees from Posting Material on Behalf of my Company?

Links from this article:
Source
NDA
Small Business Law Library

During World War II there was an expression designed to keep people from sharing seemingly unimportant information with others, especially in public places: “Loose lips sink ships.” Today that public space is the internet, and the “loose lips” of employees can quickly tarnish a company’s reputation or divulge confidential information. The key is to make it very clear that the company has specific expectations about how employees will (or will not) communicate online about the company.

 

Source

 

The informal approach 

The simplest way to make your expectations clear for your employees is to meet with them face-to-face and let them know their obligations and responsibilities. It makes the imperative personal and serious. There’s nothing more crystal-clear than looking them in the eye and telling them whether they can or cannot talk about certain things outside of work, and if they can, what the parameters are for sharing information approved to be released.

 

 

This is most effective if timed correctly. It makes the most sense to inform employees about such expectations shortly after hiring them. If you wait too long, they won’t realize that their conduct and the habits they have formed are in breach of your expectations. One systematized way of debriefing employees is to send out an informal information letter. You can use this to:

  • Remind employees of their responsibilities to the company relating to confidentiality and what information they can and cannot share, and in what ways
  • Remind employees they can’t share such information with anyone, including friends and family, and especially not the Internet—at least not without prior approval
  • Specify how long this obligation is to survive, be it forever or just until the end of their employment

 

Implement company guidelines

It’s a good idea to more formally write down and disseminate a company-wide policy that describes the company’s policy and guidelines on what constitutes acceptable or unacceptable sharing of information and representation of the company outside of work.

 

Making an electronic copy of the guidebook available on every employee’s computer and drawing it to their attention ensures that an employee can’t say you never told them or they had no way of knowing!

 

Source

 

Set it in (contractual) stone

If you really want to make sure your employees are under a legal obligation to do nothing that could tarnish the reputation of the company, include language in the employment contract requiring employees to adhere to the company policies as revised from time to time.

Include confidentiality and non-disparagement clauses in the contract, or have them sign an NDA. Make sure these clauses include express provisions that forbid discussion of the company or company business on social media or with the press, without express authorization by the company.

 

To see a standard employment agreement, visit our Small Business Law Library!

 

Conclusion

The threat of dismissal for breach of their employment contract is likely the best incentive when it comes to encouraging employees to uphold their employer’s image on the internet. Setting clear expectations early on can save everyone much grief—and keep loose lips from sinking the company ship.

 

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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