When hiring employees, it is important for employers to know what type of relationship they are getting into. And to do that, it is important to understand the difference between an at-will and contract employee.
At-Will vs. Contract Employment
Colorado is an at-will employment state. This means in the absence of an employment contract, employees can generally be terminated for any non-discriminatory, non-retaliatory reason.
Conversely, employees covered by an express or implied employment contract are not at-will employees. They are contract employees and can generally only be terminated for reasons specified in their employment contract or for cause (for some significant and material failure).
As a result, an employer of a contract employee generally has less freedom to terminate the employee, and faces a greater potential for breach of contract or related claims post-termination.
For this reason, while an employment contract may make sense for higher level employees (like managers, executives, or other key personnel), it is often preferable to ensure your employees are at-will employees by using properly drafted Offer Letters.
Offer letters are an effective tool for employers trying to ensure their employees are treated as at-will employees.
A properly drafted offer letter should:
- Identify compensation information, along with frequency and method of payment;
- Identify expected work hours, roles, and performance objectives;
- Identify any performance bonuses or fringe benefits;
- Identify any benefits, including health plans, dental, 401(k), etc.;
- Reference the employee handbook; and
- Expressly state that the employee is being hired as an at-will employee.
It is important to note that offer letters can inadvertently give rise to claims by an employee that the offer letter itself is a contract. Care should be taken in drafting offer letters to avoid:
- Implying or stating that the term of the employment is definite; or
- Implying or stating that raises, advancement, bonuses, or other performance based goals are guaranteed.
If your business wants to include non-compete or non-disclosure covenants, it is best to have these provisions in a separate, standalone document apart from the offer letter. These documents are, by their nature, contracts. While they can be sent together with the offer letter, including them in the offer letter is problematic and should be avoided.
Author: Mark D. Changaris
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