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Clear contracts help prevent headaches when employment ends

The structures of today's businesses are far more complex than ever before. Whereas companies used to hire a number of employees, often for life, businesses now hire a revolving workforce whose affiliations with the company are as varied as their employment duties. A business's ability to adapt hiring to its needs through full-time, part-time, seasonal, independent contractor and freelancer work often benefits employers and employees alike.

However, this nuanced employment web makes unraveling employee contracts challenging at times. In order for businesses and employees to avoid protracted breach of contract battles, employment contractual lines must be clearly drawn. Then, employees can leave or businesses can dismiss employees without confusion as to who owes whom what.

A recent case involving an oral employee contract highlights the need for such clarity. Had the business or employee insisted that terms of employment be clearly defined on paper as the contract began, this battle could have been avoided.

An employee began working for a company in 1980, following a hiring conversation that was never confirmed in writing. The man was to work on commission, focusing on a particular territory for the company. After a few years, the man formed his own corporation and accepted his commission payments via an account associated with the corporation. He hired employees and handled most expenses related to his commission-based work.

When the larger company decided to change direction and let the man go, the man filed a lawsuit arguing that the company had breached a unilateral employment contract. The company argued that the man was an independent contractor and no such breach existed.

The details of the case are understandably complex, as today's work relationships tend to be. However, laying these relationships out clearly in written contractual language could have saved this employee and company a great deal of headache. It is a situation best prevented by executing clear contracts at the beginning of employment, so that the process for ending the employment is predictable by all involved.

Source: Human Resources Journal, "Was Sales Rep an Independent Contractor, or Was There a Breach of Contract?" Sep. 13, 2012

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