Benefits of a Key Employee Contract

• A key employee contract can work to the benefit of both parties.signing a contract image by William Berry from Fotolia.com
  
  A key employee has attributes that make him or her especially valuable to the day-to-day operations and bottom line of an employer. These people are usually top executives, high-volume sales people, research and development engineers and others who form the essential backbone of most companies. Key employees possess knowledge, skills and trade-secret information. They have important contacts and other assets crucial to the ability of the company to maintain its competitive edge.
  
  

Considerations

• It is important for the business owner to perform an objective evaluation of the company and the contributions made by key employees. This helps to determine whether the existence of an employment contract works to the benefit of the company. From the employer’s standpoint, a key employee contract clarifies expectations and outlines them within the various provisions of the document. On the other hand, the key employee contract makes clear to the worker the terms and conditions of employment. Unlike many employees, a key employee usually has weight when it comes to negotiating certain items in these employment agreements.
  
  

Security

• A key employee contract offers security to both the employee and the company. The employer has an enforceable contract, which makes it easier to retain valuable employees and keep rivals from easily luring them away to weaken the business. Often, these agreements may enhance the company’s value to potential suitors if the owner decides to sell the business. Interested buyers would have some degree of assurance that valued employees remain with the company at least through the completion of the sale and possibly beyond.
  
  Alternatively, employees may gain because employment contracts assure them of employment for the duration of the agreement. In the event of a sale, the individuals will have continued employment under the new ownership for the fixed term of the agreement. The fixed duration also makes it easier for ownership to plan for the departure of the individual and commence the process to hire a replacement.
  
  

Guard Trade Secrets

• Many companies use key employee contracts to protect their trade secrets. Often, key employee agreements contain provisions that prohibit former workers from sharing or using confidential information. If the employee goes to work for a competitor or starts a business, he or she may not use client lists, proprietary internal procedures, supplier’s lists and other company secrets. A breach of this agreement gives the employer grounds for filing a lawsuit and receiving possible damages.
  
  

Non-Compete Protection

• The non-compete clause constitutes a common provision in many key employee contracts. This stipulation may prevent a valuable worker from going to work for a competitor, opening a competing business or becoming a board member for a rival business. Usually, the contract spells out a specific period, such as 18 months. In some states, courts will not enforce non-competing clauses.