Updated November 17, 2020:

When there is no termination clause in an employee contract, it means an indefinite contract of employment is in place, but a termination is still an option with reasonable notice given. There is some question as to how much notice is considered reasonable. Determining whether 30, 60, or 90 days is reasonable can prove challenging because it involves examining all the circumstances, both those precisely expressed and those that have been implied.

Termination Clause: A Standard Part of an Employment Contract

A termination clause acknowledges that either the employer or the employee is free to end the employment contract for any or no given reason by providing the other party with a specific amount of notice.

  • Notice may be as short as two weeks.
  • No notice may be required on the employer's part if the employee infringes on the contract in any manner.
  • Physical or mental disability on the part of the employee that leaves him or her unable to perform assigned tasks is also typically noted as a reason the employer may terminate the contract.

Choice of Law

Employment laws are not the same in every state. The employment laws in some states favor employers while other states have employment laws that favor employees. A choice of law clause in an employment contract says that the laws of a pre-selected state will govern if an issue ever arises between the employer and employee. This state remains the same under the choice of law clause no matter where a case is filed.

Employment Contract Basics

Almost all employment contracts have some of the same elements. These elements include the date the employee starts with the company, the amount of the employee's salary, and benefits the employee is to receive. These enforceable agreements can take a variety of forms. Also, employers may ask all employees to sign the same form of contract, or the employer can choose to create a unique contract for each employee to accommodate a specific set of employment circumstances.

Confidentiality Agreements

When an employee is expected to encounter proprietary information, like trade secrets, in the course of employment, the employer may include an employee confidentiality agreement in the contract. As part of the agreement, the employee agrees to maintain the employer's:

  • Trade secrets
  • Future plans for the organization
  • Formulas used in the course of business
  • Private data
  • Types of machines used
  • Pricing information
  • Information about any detail of the business

Confidentiality agreements remain in effect after the employment ends.

Non-Competition Clauses

When an employer asks an employee to sign an agreement not to work for a rival company or any similar company for a specific time period after his or her employment ends, it's called a non-competition clause in the employment agreement. This type of clause also includes an agreement that the employee won't start a business that competes with the employer or tries to take the employer's customers. These agreements are usually only applicable within a specific geographic area.

Agreements About Ownership of Inventions

Employers may ask employees who create inventions in the course of work to agree to an ownership of inventions agreement. This type of agreement notes that anything invented by the employee during the term of employment and for a specific time period after employment ends belongs to the employer rather than the employee. Employees agreeing to these clauses are also often asked in the contract to help the employer obtain patents and maintain confidentiality about the inventions. The contract may also include information on special consideration or royalties the employee can expect to receive for inventions.

Best Efforts Agreements

Under a best efforts agreement, instead of assuming an employee will work hard for the company, employers ask employees to sign a contract to that effect. A best efforts clause says the employee is contractually promising to perform at peak capacity and remain loyal to the employer. The employee may even have to make recommendations that help the company, under the agreement.

Formal employment agreements exist to provide clarity regarding a variety of issues that can come up during the course of employment and after it ends.

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