By Eric B. Meyer
Want another reason not to enter into a long-term contract with an employee?
Most employment arrangements in the United States are at-will. That is, the employee may be fired (or may quit) at any time for any reason.
Conversely, a term employment agreement is for a specific period of time (usually a number of years) and includes a promise to pay an employee compensation over that entire period. Some of these contracts include performance milestones that could void the contract if not satisfied. Others are guaranteed and not dependent upon employee performance.
Why you should avoid employee contracts
The New Jersey Wage Payment Law requires employers to pay wages to employees when due. For purposes of the obligation to pay wages, the officers of a corporation who are responsible for its management, are to be treated as “employers.”
Why does this matter? Because if the business goes belly up or otherwise doesn’t pay employee wages when due, then the officers can be held personally liable.
That is precisely what the New Jersey Superior Court, Appellate Division, reaffirmed last week — without taking any pot-shots at Philadelphia athletes who have gone bust — in this decision, where the 10-year employment agreement at issue specified that the plaintiff would be “entitled to receive her base salary without regard to her performance for any targets, sales goals or achievements.”
The lesson here for employers: Don’t enter into that contract. And if you are inclined to enter into a term agreement with an employee, leave yourself some outs based on performance, company options, or otherwise.
This was originally published on Eric B. Meyer’s blog, The Employer Handbook.