What constitutes valuable consideration for an employee contract?

| Oct 20, 2021 | Business Litigation |

Employment contracts help protect your company. They make it clear what kind of compensation an employee should receive and what you expect of them. Sometimes, you may have to go to court to enforce your contract, such as when an employee violates a restrictive covenant after leaving your business. 

You can only enforce a contract that the courts consider valid, which means your former employee may try to show that the contract doesn’t meet the necessary legal standards. Part of what establishes the validity of your contract is that each party receives something valuable. Specifically, you have to offer some kind of valuable consideration for any concession made by your employee. 

What kind of compensation amounts to valuable consideration for an employment agreement?

Different situations require different forms of compensation 

What constitutes adequate valuable consideration can shift dramatically from scenario to scenario. For example, when you initially hire someone, the offer of employment could suffice as a valuable consideration. The same is true of a promotion offered to an existing employee. 

However, you cannot simply demand that someone already on your payroll sign an addendum to their contract or agree to new restrictive covenants without first offering them some kind of valuable consideration for those new concessions. 

You might consider offering them an extra day of vacation time or a one-time bonus. Being careful about how you compensate employees who must make concessions to maintain their position at your company will help make the contract themselves more enforceable if there are issues in the future. Familiarizing yourself with the basics of contract law will better prepare you for potential contract disputes.