Question: How Can Employment Contracts Help My Family Business?

Attorney Susan Dawson discusses family businesses and how to prevent conflicts with the use of employment contracts (also known as employment agreements).

Answer:

Why Employment Contracts Are Necessary in Family Businesses

How do I deal with family members who are not pulling their weight?

Family members in a family business frequently do not sign employment contracts.

However very often one family member does not pull their weight as much as the others. That could be for a variety of reasons, but many times it stems back to the concept that you are all family and what are they going to do about it?

Employment contracts are especially helpful in family businesses, not because it makes it easier to fire family – nothing about firing family is easy. No, it’s because the employment contract gives each family member a solid guideline about the expectations of their employment.

• Are they required to work Saturdays? It’s in the agreement.
• Are there certain sales quotas they are required to meet? Put it in writing.

That way you can reference back to the agreement when their performance starts to slip.

Also, when you have various employees bound by the same or similar agreements, you need to enforce those agreements evenly. So if you have your family member sign an agreement similar to those that other employees sign, when they start neglecting their duties you can fall on the “similar treatment” rule as your excuse.

Remind them that you cannot treat them differently because that would set a precedent you would then have to follow for all employees.

What about Owners?

The employment agreement can apply to family members that are part owners of the business two. If you have a shareholder agreement, partnership agreement, or operating agreement in place, those agreements and their ownership interest should be tied together with their employment agreement. For example, if they are fired under the employment agreement you can buy them out under the shareholder agreement. Or if you don’t want that, you can provide that their management or voting authority is reduced upon termination of employment by also removing them as a director and/or officer, partner, (or manager if you are an LLC).

Susan Dawson has devoted her career to representing businesses, business owners, and entrepreneurs. She prides herself in providing unparalleled service to her clients, quickly responding to and addressing their needs while using her extensive experience to advise clients on the best course of action for their businesses. She concentrates her practice in the areas of Business/Corporate Law, Employment Law and Commercial Real Estate/Leasing.

Waltz, Palmer & Dawson LLC (www.wpdlegal.com) was founded in 2008, creating one of the only entirely women owned law firms in the Chicagoland area. The firm uses its unique perspective to provide unparalleled legal services to its clients.