Employment Agreements

In several prior issues of California Veterinarian, we provided information regarding an assortment of legal issues, running the gamut from a veterinarian’s duty of care with respect to dangerous animals to responding to a subpoena to insurance-related matters.  In this issue, we switch gears in order to analyze another issue of interest to California veterinarians—the use of employment agreements between veterinarian employers and their employees (including veterinarian employees).

While veterinary practitioners are not legally required to maintain formal employment agreements with their employees, such agreements can be a useful way to clearly specify pertinent terms of employment and avoid disputes regarding such terms.  As we will detail, employment agreements may include terms relating to such items as terminability, compensation, dispute resolution processes, and many other items.  Employment agreements may contain as little or as much as the parties wish.  Therefore, if an employment agreement is used, it is not necessary that the agreement contain language relating to every single term or condition of employment.  In this regard, employers who are generally comfortable operating without a detailed employment agreement, but want to reduce certain specific items to writing, may do so.  The following is a list of several topics that an employment agreement may address.

Status of Employment
Unless otherwise specified, employment in California is presumed to be “at-will”; that is, either party may terminate the employment relationship at any time, provided that the termination is not in violation of law or public policy (e.g., an employee may not be terminated simply because of the employee’s race).  Where the parties seek to transform the normal at-will relationship into one under which an employee may only be terminated “for cause,” it is important to have a written document memorializing the particular items that may justify termination.  If the employer also has in place an incremental discipline system with steps such as a warning, followed by probation, followed by termination, it is very important to clearly describe this system in writing so that there will be no confusion over whether the designated steps were properly followed.

By the same token, even if the parties wish to maintain the at-will presumption normally attendant to employment, they may still want to reduce this arrangement to writing in order to minimize the chances of there later arising a dispute in which it is contended that the employment relationship was one that was terminable only for cause.  In this vein, certain dealings between the parties during the employment relationship can sometimes serve to alter “at-will” employment to “for cause” employment.  One such example is where the employer, after hiring the employee on an “at-will” basis, is understood to tell the employee that the latter would not be terminated unless he/she engaged in some form of misconduct.  In such a case, while the original understanding may have been that employment was “at-will,” this classification is not etched in stone if the subsequent course of dealing shows an intention to change the classification.

Of course, a written employment agreement memorializing at-will employment status does not act as an absolute insurance policy against future disputes.  However, such an agreement definitely does make it less likely that a dispute will arise, and the burden of establishing a transformation of employment to “for cause” status is more significantly more difficult to meet in the face of a written agreement.  In fact, California courts have held that an implied agreement of “for cause” employment may not exist where there is an express contract to the contrary.  For this reason, an employment agreement setting forth the nature of a particular employee’s employment can be useful in forestalling future disputes about the circumstances under which the employee can be terminated.

Although not legally required, a written employment agreement may also be useful for purposes of setting forth an employee’s compensation.  This may be the case even when an employee’s actual compensation may vary from period to period (i.e., when the employee is paid on a commission or piece rate).  For example, it is important to compensate your exempt employees at a rate of no less than two times the state minimum wage for full-time employment.  The current minimum wage in California is $6.75 per hour.  Thus, in order to qualify for exempt status under California wage and hour law, an employee must earn the equivalent of $13.50 per hour based on a 40-hour work week, or $28,080.00 per year ($2,340.00 per month and $540.00 per week).  If the parties wish to ensure that a particular employee’s compensation meets the exemption criteria, it would be best to include a provision in a written employment agreement indicating that the employee will receive a monthly salary equivalent to no less than $540.00 per week (the California Division of Labor Standards Enforcement indicates this figure is derived by multiplying the required monthly salary—at least $2,340.00—by twelve, then dividing by 52).  In this manner, even if this minimum standard never actually comes into play as a factual matter, the parties will have clear documentation indicating that the employee will always be sufficiently compensated to meet the requisite standard.  This, in turn, will ensure that, at least insofar as compensation is concerned, the employee will meet the requirements for exemption.  In order to take into account future increases in the minimum salary required for exemption, you may also put in a “floating” standard in the agreement which indicates that, should the state minimum wage increase, that the employee will always be compensated at a monthly rate equivalent to at least two times the state minimum wage for full time employment (computed on a weekly basis).

Obviously, an employment agreement also may contain provisions regarding other aspects of salary, including time of payment and the like, as well as language regarding additional benefits attendant to the employment.

Arbitration Provisions
Although a thorough discussion of arbitration provisions in employment agreements is well beyond the scope of this article, some employers prefer to include arbitration clauses or other dispute resolution processes in employment agreements. There are a myriad of advantages and disadvantages inherent in such processes, and the propriety of including an arbitration or similar provision in an employment agreement depends on the unique circumstances of each employment relationship.  If you are considering including such provisions in an employment agreement, you should contact a qualified attorney to explain the benefits and detriments of these alternative dispute resolution mechanisms.

Prohibitions on Other Employment
In the veterinary and other professional contexts, it is often understood between the parties that the employee’s employment is to be exclusive.  However, other than legal constraints on competition during employment, there is nothing that formally prohibits an employee from performing work for another business.  If the parties wish to make clear that the employment is exclusive even as against non-competing ventures, they may include a provision in an employment agreement indicating as much.

Parties who wish to enter into an agreement prohibiting or constraining post-termination employment activities, even activities of an employee that are in ostensible competition with the former employer, must be very careful, as such non-competition provisions are usually unenforceable in California.

No matter what provisions parties decide to include in an employment agreement, such provisions should be carefully reviewed before the parties execute the agreement so that both parties are cognizant of their respective rights and obligations.  An employment agreement means little if the parties do not know what is included therein, or if the agreement is ambiguous or confusing in its terms.  The whole reason for entering into an employment agreement is to obtain greater certainty than would attach in the absence of such an agreement.  Pay attention to the terms of the agreement, and make sure you understand what they mean.  If you are uncomfortable with the terms or effect of an agreement, or have other questions or concerns that are not satisfactorily being answered, consider consulting a qualified attorney.