What Happens If You Don’t Review Your Arizona Employment Contracts Annually?

Reviewing Employment Contract

An employment contract is an important document that lays out the terms of a company’s working relationship with an employee. Among other things, a well-drafted employment contract covers the employee’s starting date, responsibilities, compensation, benefits, length of service if a fixed period of time is contemplated, any applicable probationary period, non-compete or non-solicitation provisions if necessary, non-disclosure and trade secret protections, and how performance evaluations are conducted.

Employment contracts are not required in Arizona, but they are recommended for at least some employees (particularly executives, management, or supervisors) to clarify important aspects of the employment relationship, help eliminate confusion and misunderstandings, protect confidential information, and reduce the company’s risk of a lawsuit if a disagreement arises.

Although many Arizona businesses do require their employees to sign employment contracts, these are often placed in personnel files and seldom, if ever, reviewed. However, if your company does not review its employment contracts at least annually, several consequences may ensue.

An Employee’s Duties May No Longer Be Accurately Described

Often, when an employee has been with the company for a number of years, their specific responsibilities may have changed. Ideally, employment contracts should reflect employees’ actual job duties, it is important to review these contracts every year and update them as needed.

Changes In the Law May Not Be Reflected

Changes in labor laws should be reflected in employment contracts, and an employment contract could run afoul of the law if it is not reviewed and amended as appropriate at least once a year. For example, the Arizona Fair Wages and Healthy Family Act, enacted in 2016, increased the minimum wage in Arizona and allows employees to accrue and use paid sick leave every year. If an employment contract contradicts the law’s provisions, an employee may sue the company and/or file a complaint with the Industrial Commission of Arizona. 

Non-Competition and/or Non-Solicitation Agreements May No Longer Be Appropriate

We recently had an opportunity to assist a client with a former employee who had left their employment and begun working for a competitor. They contacted our office in regards to enforcing their contract that had non-compete and non-solicit provisions contained within it. Unfortunately, the language and provisions it contained had not been updated in many years and the provisions were no longer enforceable as they were written. 

To be enforceable, a non-compete or non-solicitation agreement in Arizona must be reasonable in scope and duration and protect a legitimate business interest of the employer. Even if such an agreement in an employee’s original employment contract was proper at the time the contract was signed, circumstances and/or relevant case law may have changed.

For example, if someone has been promoted to a more senior position, a longer non-compete agreement may be desirable. As a result, non-compete and non-solicitation agreements should be reviewed annually to ensure they are still valid and meet the company’s needs.

Confidential Information May No Longer Be Adequately Protected

Employment contracts often contain provisions requiring employees not to disclose the employer’s trade secrets or other proprietary or confidential information. However, these provisions can vary depending on the seniority level of the employee and other circumstances. If an employee has been promoted since they were hired and now has access to additional confidential information, the confidentiality provision in their employment contract may need to be updated.

Compensation and Benefits May Not Be Properly Addressed

More senior employees often receive higher salaries, bonuses, etc. If an employment contract addresses compensation, it should be updated every year to reflect any changes.

Does an Employee Have to Sign an Amended Employment Contract?

If changes are made to a current employee’s employment contract, that person can be required to sign it if they are provided adequate consideration. Generally speaking, the implied promise of employment and continued employment of an at-will employee is sufficient consideration to support a new or revised employment agreement (Mattison v. Johnston, 152 Ariz. 109 (Ariz. Ct. App. 1986)).

In that case, the plaintiff, an employee at a beauty salon, signed a covenant not to compete two years after she started work. She later quit voluntarily and went to work for a competing salon in violation of the agreement. The court held that the agreement was binding and that the implied promise of employment and continued employment with her previous employer was sufficient consideration for the restrictive covenant.

Contact Counxel Legal Firm

The laws pertaining to employment contracts can be complicated and fact-specific. If you would like to talk to an attorney about drafting or reviewing an employment contract, contact us at (480) 744-6621 or at request@counxel.com. Don’t forget to check out the good things that others are saying about the services they received from Timothy Coons on Google.

This article is intended for informational purposes only and does not constitute legal advice for your specific situation. Use of and access to this article does not create an attorney-client relationship between you and Counxel Legal Firm. Please contact request@counxel.com or (480) 744-6621 to request specific information for your situation.

*Conveniently located off the 101 Freeway and the US 60 in the middle of Phoenix, Scottsdale, Tempe, Chandler, Gilbert, Mesa, and Queen Creek!

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