Mark Pestronk
Q: I own an agency with a dozen employees, most of whom are leisure advisors who have been with me for years. None have ever signed an employment contract. A colleague tells me that is a mistake. Is a written agreement really necessary, and how do I overcome the awkwardness of asking longtime staff to sign one?
A: Your colleague is right. In my experience, not having written employment agreements often leads to one or more of the following four major headaches for agency owners.
First, employees are free to leave, go to work in competition with you and solicit all the clients that they worked with. They can even get clients to cancel existing bookings with your agency and rebook with their new agency. You have no recourse, unless you can prove that they took records from your agency by, for example, emailing reservation records to themselves.
Second, even if you can prove that the employees took records, you may not be able to prove that the records belong to you versus belonging to the employees. No court is going to make the ex-employee return records under those circumstances. A well-drafted agreement solves this problem by stating that client lists, profiles, booking records and supplier contacts belong to the agency and that the employee must return them on departure.
Third, even if ex-employees take no records and do not solicit existing clients, they can use the knowledge they gained to set up in competition with you. That can be especially hurtful if you have a high-end specialty that the ex-employee learned all about while on your payroll.
While some states outlaw contract terms that prohibit ex-employees from competing with you, most states do allow noncompetition covenants for a reasonable period of time, such as one year.
Fourth, the most frequent fight I see is over commissions on trips booked before the advisor left but completed afterward. If the employees are partly paid on commission, do you have to pay ex-employees a share? In the absence of an employment contract specifying the answer, there really is no answer. A written commission plan settles the question in advance.
Moreover, in some states, including New York and California, a written commission agreement is legally required for commissioned employees.
Many owners also worry that a contract will lock them into keeping an employee. It won't, if properly drafted. The agreement can confirm that employment remains at will, while still binding the employee to post-employment obligations.
I certainly sympathize with the awkwardness that you mentioned. To overcome it, I have two suggestions: first, offer something of value to induce the employees to sign the agreement, such as a bonus, a raise or an improved commission split. In any case, some states require you to provide one of these things to existing employees in order for any employment agreement to be binding.
Second, you can tell the employees that your attorney is requiring you to get the agreement signed.