Texas Employment Agreements | Heath Business Lawyer

Drafting a Texas Employment Agreement: What Business Owners Should Include

Hiring an employee is an important investment in a business. Before the employee begins work, the business should clearly document the employee’s responsibilities, compensation, access to confidential information, and obligations after the employment relationship ends. A properly drafted Texas employment agreement can help prevent misunderstandings and protect the business. A poorly drafted agreement, however, may create obligations the business never intended to assume or contain restrictions that are difficult to enforce. Business owners in Heath, Rockwall County, and throughout North Texas should use employment agreements that are tailored to the position, the company’s operations, and applicable Texas law.

What Is an Employment Agreement?

An employment agreement is a contract between a business and an employee that defines specific terms of the employment relationship. Depending on the position, the agreement may address the employee’s duties and responsibilities, compensation, commissions, bonuses, employment status, confidentiality obligations, trade secrets, intellectual property, ownership of work product, noncompetes, and non-solicitation obligations, company property, data security, termination procedures, and dispute resolution. Not every employee requires an extensive employment contract. More detailed agreements may be appropriate for executives, managers, sales employees, and employees who have access to valuable confidential information, trade secrets, or important customer relationships. The appropriate structure ultimately depends on the employee’s role and the legitimate business interests the company needs to protect.

1. Clearly Address Whether Employment is At-Will

Texas generally follows the employment-at-will doctrine. Unless a statute or an enforceable agreement provides otherwise, either the employer or the employee may ordinarily end the employment relationship at any time, with or without advance notice. The agreement should nevertheless state clearly whether the relationship remains at will or whether the employee is being hired for a defined contractual term. Businesses should avoid language suggesting guaranteed employment, or termination only “for cause” unless those terms are intentional.

2. Define the Employee’s Position and Responsibilities

   
   

The agreement should identify the employee’s job title, general duties, supervisor or reporting structure, primary work location, and expected schedule, when appropriate. It should also explain whether the employee has authority to sign contracts, incur expenses, or otherwise bind the business, and should require the employee to comply with the company’s lawful policies and procedures. A job description should be specific enough to establish clear expectations without unnecessarily restricting the business’s ability to modify assignments as its operational needs change. For managerial or client-facing employees, the agreement may also address ownership and control of customer relationships, business records, passwords, account credentials, and communications created or maintained during employment.

3. Explain Compensation in Precise Terms

   
   

Compensation disputes frequently arise when an employment agreement does not clearly explain how compensation is calculated or when it becomes earned and payable. A Texas employment agreement should identify the employee’s hourly wage or salary, applicable pay period, overtime classification and eligibility, and any benefits, paid time off, or expense-reimbursement procedures. If the employee may receive commissions, bonuses, or other performance-based compensation, the agreement should explain the method of calculation, applicable performance requirements, when the compensation becomes earned, when it will be paid, and how pending compensation will be treated after the employment relationship ends. Texas law provides that commissions and bonuses are due according to the terms of the agreement between the employer and employee. Clear drafting is therefore particularly important for employees who receive commissions, performance incentives, or other variable compensation.

4. Protect Confidential Information and Trade Secrets

Employees may receive access to customer lists, pricing information, financial records, marketing strategies, operating procedures, software, vendor terms, and other commercially valuable information. A confidentiality provision should identify the categories of information the business considers protected and explain how that information may be used, who may receive it, how it must be stored, whether it may be copied or removed, when it must be returned or deleted, and which obligations continue after the employment relationship ends. The provision should distinguish protected business information from information that is publicly available, independently developed without using the employer’s confidential information, or lawfully obtained from another source. A confidentiality agreement can be an important part of the business’s reasonable protective measures, but the written agreement should be supported by practical safeguards. Depending on the circumstances, those safeguards may include limiting access to sensitive information, requiring secure passwords, implementing document controls, maintaining appropriate cybersecurity procedures, and training employees concerning their confidentiality and data-security obligations.

5. Address Intellectual Property and Work Product

   
   

If an employee will create software, designs, written materials, photographs, marketing content, inventions, processes, or other intellectual property, the employment agreement should clearly identify who will own that work. A carefully drafted provision may address work created within the employee’s job duties, work produced using company time, equipment, or confidential information, and the assignment of applicable ownership rights to the business. It may also require the employee to disclose relevant inventions and developments and to provide reasonable assistance with registrations, documentation, or enforcement of the company’s intellectual-property rights. The agreement should separately address intellectual property the employee created before joining the company. Identifying preexisting work can help distinguish the employee’s property from work created for the employer and reduce the possibility of a later ownership dispute. General language claiming that the company owns “everything” the employee creates may be unnecessarily broad and difficult to apply. Instead, the provision should be tailored to the employee’s actual responsibilities, the work the employee is expected to perform, and the business’s legitimate ownership and confidentiality needs.

6. Use Noncompetition and Nonsolicitation Provisions Carefully

A Texas business should not insert a generic noncompete clause into every employment agreement. Under Texas Business and Commerce Code § 15.50, a covenant not to compete must be ancillary to or part of an otherwise enforceable agreement and must contain reasonable limitations concerning time, geographic area, and the scope of restricted activity. The covenant also must not impose a greater restraint than necessary to protect the business’s goodwill or other legitimate business interests. Depending on the employee’s position, an agreement may address competition with the employer, solicitation of customers or employees, interference with business relationships, use of confidential information, and the return or deletion of company data. These provisions should be tailored to the employee’s actual duties, geographic territory, customer relationships, and access to confidential information. For example, a nationwide restriction may be difficult to justify when an employee works only within a limited North Texas market. Certain professions and occupations are subject to additional statutory requirements and limitations. Because the enforceability of restrictive covenants depends on the agreement’s language, the employee’s role, and the law in effect when enforcement is sought, businesses should have noncompetition and nonsolicitation provisions reviewed by a Texas attorney before using them.

7. Address Company Property and Data Security

The agreement should require the employee to protect and return all company property, including computers, mobile devices, physical and electronic files, keys, access cards, passwords, authentication credentials, customer and vendor information, email and cloud-storage accounts, equipment, inventory, and copies of confidential information. The agreement should make clear that the employee’s obligation applies regardless of whether the property or information is stored in physical or electronic form. The agreement should also address the employee’s use of personal devices, personal email accounts, cloud platforms, artificial-intelligence tools, and removable storage when accessing, processing, or retaining company information. Depending on the business’s operations, the employee may be required to use only approved systems, follow specified security procedures, and cooperate with the removal of company information from personal accounts or devices when employment ends. These provisions are increasingly important because business information may remain accessible long after an employee leaves unless the company has established clear procedures for returning property, deleting information, transferring account control, and terminating access to company systems.

8. Plan for the End of Employment

   
   

The agreement should explain which obligations apply when the employment relationship ends. Depending on the circumstances, those provisions may address final compensation, the treatment of commissions and bonuses, the return of company property, and the deletion of company information from personal devices or accounts. The agreement may also identify continuing confidentiality obligations, enforceable post-employment restrictions, required cooperation in pending business or legal matters, and procedures for revoking access to company systems.

9. Include Appropriate Contract Terms

   
   

A complete Texas employment agreement may also include provisions addressing Texas governing law, the proper venue for disputes, arbitration or other dispute-resolution procedures, notices between the parties, assignment of the agreement, severability, waiver, amendments, conflicts with other company documents, and the parties’ entire agreement. The agreement may also authorize execution in counterparts and the use of electronic records and signatures. Texas generally recognizes electronic records and electronic signatures when the parties have agreed to conduct the transaction electronically. Businesses should nevertheless use a reliable signing process that preserves the final agreement and creates a clear record of each party’s consent. These provisions should be coordinated with the employee’s offer letter, employee handbook, compensation plan, confidentiality agreement, and any other documents governing the employment relationship. Reviewing the documents together can help prevent inconsistent terms concerning compensation, at-will status, confidentiality, dispute resolution, and post-employment obligations.

Careful review of employment terms can help Texas businesses document expectations.

For commission and bonus timing, see Texas Labor Code § 61.015.

Common Employment-Agreement Mistakes

Texas businesses should avoid using the same employment agreement for every employee. A sales employee with access to customer lists and pricing information presents different risks from an administrative employee, executive, manager, or software developer. The agreement should reflect the employee’s actual position, responsibilities, authority, access to confidential information, and relationship with the company’s customers.

Businesses should also avoid assuming that labeling a worker an “independent contractor” determines the worker’s legal classification. The parties’ actual relationship, including the nature of the work and the degree of control exercised by the business, remains important. An incorrectly classified worker can potentially expose the business to wage, tax, benefit, and other legal consequences. Commission provisions should clearly explain how compensation is calculated, when it becomes earned, when it is payable, and what happens to pending commissions when employment ends. Similarly, businesses should not copy an overbroad noncompetition provision from another agreement. Any restriction should be tailored to the employee’s role and should protect a legitimate business interest without restricting more work, territory, or time than reasonably necessary.

The employee’s offer letter, employment agreement, handbook, commission plan, confidentiality agreement, and related documents should also be reviewed together to prevent inconsistent provisions. Finally, the business should update the agreement when the employee’s responsibilities materially change. An agreement drafted for an entry-level employee may no longer be appropriate after that employee becomes a manager, gains access to sensitive information, develops important customer relationships, or begins serving a new geographic market.

Does Every Texas Employee Need a Written Contract?

Generally, it is advisable to document the essential terms and conditions of employment in writing. The appropriate form and extent of that documentation will vary depending on the nature of the position and the employer’s particular needs. In some circumstances, a comprehensive employment agreement may be appropriate, while in others, an offer letter together with applicable workplace policies or separate agreements may be sufficient.

Why Customized Drafting Matters

An employment agreement should do more than assemble standard provisions. It should reflect how the business actually operates, how the employee will be paid, what information the employee will receive, and which risks the business genuinely needs to address.

K. Nichols Law Firm, PLLC assists and represents individuals and small business owners in Heath, throughout Rockwall County, and across surrounding North Texas communities with business law matters. Our business law services include drafting and reviewing employment agreements, confidentiality agreements, compensation provisions, and other business contracts. Contact our Heath, Texas office to schedule a consultation regarding your business law needs.

Frequently Asked Questions

Can a Texas employee remain at will after signing an employment agreement?

Signing a written employment agreement does not necessarily change an employee’s at-will status. The agreement may expressly provide that employment is not for a definite term and that either the employer or the employee may end the employment relationship at any time, subject to applicable law and any specific contractual obligations.

Are employee noncompete agreements enforceable in Texas?

It depends. Employee noncompete agreements may be enforceable in Texas if they satisfy applicable legal requirements, including being supported by an otherwise enforceable agreement and containing reasonable limitations as to time, geographic area, and the scope of restricted activities. Additional requirements or limitations may apply to certain professions and industries. Because enforceability depends on the agreement’s specific language and surrounding circumstances, each noncompete should be evaluated individually.

Should commissions and bonuses be included in the agreement?

Yes, generally, an employment agreement should explain how compensation is calculated, when they are earned, when they are payable, and how termination affects pending payments.

Can a Texas employment agreement be signed electronically?

Generally, yes, when the parties agree to conduct the transaction electronically and the agreement otherwise satisfies applicable legal requirements.

DISCLAIMER: This article provides general information about Texas law and does not constitute legal advice. Each case is fact-specific. Individuals and businesses should consult a qualified attorney regarding their particular agreements, employees, and operations.