We’re on a simplification kick at 37signals. As we grow, we’re trying to simplify our business even more. Growth generally brings complexity, but we want to see if we can go in the other direction.
Questioning assumptions
Simplification usually starts with questioning assumptions. Why do we do this? Why do we need this? Is this really necessary? Is it just inertia? Are we doing it because that’s how we’ve always done it or are we doing it because it’s better? Are we just following conventional wisdom or is there newer wisdom we should be considering?
Why do we need employment contracts?
One of the things we’re beginning to question are employment contracts. When a new employee starts at 37signals we make them sign an employment contract. The contract was drawn up by our lawyers a few years back, so there are no incremental costs each time we bring on a new employee, but is that good enough reason to keep this inertia going?
The contract is about five pages. It outlines some basic responsibilities we have to the employee and the employee has to the company. Starting salary, an overview of benefits, vacation time, confidentiality, and general expectations on both sides. But that’s really only a paragraph or two. Everything else is legal-cover-your-ass-speak. Like most contracts, it’s basically a big “I don’t trust you and you don’t trust me” document. What a terrible way to welcome someone to the team.
How often are these things actually enforced in a business like ours? And if people aren’t really enforcing them, why are we writing/signing them? “Just in case” feels like a pretty weak argument to go through all the cost, trouble, and rigamarole. Is “Imagine if someone…” enough reason to have the first step we take with a new team member covered in legal mud?
What if we became a handshake company?
So we’ve been thinking… What if we did away with these employment contracts entirely? What if we became a handshake company? Plenty of small companies work this way, why can’t we? Aside from each person’s salary, we could post all our responsibilities and their responsibilities on the web.
We could make a ”/workinghere” page at 37signals.com that clearly lays out what employees can expect from the company and what the company expects from the employees. It could be a living document too. Things change, benefits change, rules change. That’s just how it goes. You read it, we shake hands, and we start working together. In the event that it doesn’t work out, we ask you to leave or you quit. That’s how it is anyway – employment in the United States is at-will. Every employment contract I’ve seen includes a line about at-will employment. So what are the dozens of other paragraphs really for?
In this day and age it seems crazy to even consider ditching employment contracts, but why? Why have we become so dependent on lawyers to control every relationship inside our companies? Why is “just in case” the default answer when asking questions about contracts? It sounds more like insurance than legal counsel. And the premiums are sky high.
What’s your experience?
What are your experiences with employment contracts? If you own a business, do you require employment contracts? If you are an employee somewhere, have you signed a contract? Has anyone here ever had to actually sue or litigate an issue specifically related to an employment contract? If you’re an employee, do you feel more or less comfortable joining a company that makes you sign a legal contract? Does anyone feel good about signing these things?
Would love to hear everyone’s thoughts.
Tony
on 29 Mar 10Contracts I’ve signed, in the web software world, relate mostly to non-competes and confidentiality.
Companies don’t want me to steal their information, proprietary code, or clients. But I find that is only heavily enforced when employees leave under bad circumstances, anyway.
If you leave on good terms, then no one seems to want to burn bridges, and they stay pretty flexible.
I would love a circumstance where the only documentation was a guarantee that I’d be deliver work, and that I’d be paid for it.
You’d definitely be ensuring any future employees to be like-minded.
Jeffrey Tang
on 29 Mar 10In my experience, most legal language has little purpose EXCEPT covering one’s ass. But then again, just because you have the ass-covering legal stuff doesn’t preclude someone bringing a wrongful termination suit against you, for example. They might not win their case, but you’ll still have to deal with the expense and hassle of handling the suit, whether or not you have the legal language in place.
So hey, I’m all for the handshake idea.
John Freeborn
on 29 Mar 10Employment contracts are useless, I agree. It’s only for the scared employer to cover their asses if they do something heinous. I was recently fired after returning to work from jury duty and nothing in that document, the employee handbook or state law has helped me in the slightest.
I commend your approach. Most companies are not this brave or wise.
Anonymous Coward
on 29 Mar 10Contracts I’ve signed, in the web software world, relate mostly to non-competes and confidentiality.<
Non-competes are pretty much unenforceable.
DHH
on 29 Mar 10We don’t have non-competes and wouldn’t want to enforce them. I’d love to find out what’s already in the law about employees taking work product created on company time with them.
Steve
on 29 Mar 10I had a conversation recently with a buddy of mine between the differences between a contract and a covenant, and how most contracts (between people and businesses) should be covenants. As you said, contracts are very much the “I don’t trust you and you don’t trust me”, but covenants are the opposite.
Marcos Toledo
on 29 Mar 10There’s also the fact that 37signals only hires top talent with quite some public visibility and public track record too, so its easier to think that having the contract doesn’t make much sense in your situation.
I believe some companies do hire people that don’t have this public track record and therefore feel more comfortable having they signing the contract in case they need legal enforcing due to something unexpected happening.
Finally, some people need the contract in order to receive international payments, since the govt files the contract with the transaction for tracking purposes.
Steve
on 29 Mar 10sorry, worth noting is that when he discussed covenants he was more specifically referring to (and I hope I’m getting this right because I’m not religious) most Christian’s covenants with God. More of a “I promise to do right by you” covenant.
Brian
on 29 Mar 10I’m in a position that I get asked to sign a lot of NDAs. I always tell them that I won’t sign them. I am around too many smart people and if they come up with a similar idea then I don’t want to be held accountable.
Nine times out of ten, the person tells me anyway.
NDAs are silly.
Another Coward
on 29 Mar 10Reasonably crafted non-competes are certainly enforceable. The other coward is either from California or has had bad lawyers/overreaching companies. See, most recently for example, the Bimbo Bakeries Muffin Man case.
Aside from that, you probably do want some confidentiality obligations and some IP ownership allocations. Putting them on a website wouldn’t work, or you’d have to get the employees to agree to the website delivery, which is the same as getting them to sign the contract anyway. That’s just form over substance. Plus, terms that are subject to unilateral amendment by the employer run the risk of being tossed out by a judge.
@DHH- do you really want legal advice on the core of your company’s business from a bunch of commenters? Even anonymous cowards like me who are actually lawyers? If you want to know the answer to that question, just pay a lawyer. I can recommend plenty of good ones who understand small businesses’ needs and won’t overlawyer you.
Anne
on 29 Mar 10I’m a lawyer specialising in Intellectual property and know in incredible detail what the law is about employees taking work product created on company time with them. I also know the whys and hows of employment contracts.
Of course, since you loathe lawyers so much and think we’re unnecessary, why should I help you? Particularly for free? If I sat around and insulted publicly what you do for a living, I wouldn’t be loopy enough to then expect you to do anything for me to be helpful or kind or out of the goodness of your heart. So if you want to know such things, and you think lawyers and contracts are so heinous, reap what you sow.
Genuine apologies and actual questions can be e-mailed to me directly.
Jane Quigley
on 29 Mar 10I had a company that I left, with whom I thought I had a good relationship, actually send the legal notification that they were suing me to my new employer – not to me. It took one letter of response from my lawyer for it to go away and for me to realize that pretty much everything in those agreements are unenforceable.
A company that sees hiring as the start of a relationship is a powerful and maverick idea
Daniel
on 29 Mar 10Last time I had an employment contract in my hands, I also had to sign the Coporate Social Resposibility contract. It basically said that I agreed to not break the law, employ child labor or accept bribes…. Ummm?
I’m pretty sure none of those things were in my job description (web app development), and I was working in an office in Denmark (the least corrupt nation in the world, some study recently found). I don’t exactly see what my opportunities were for accepting bribes, employing child labor, or breaking the law. I guess that would be something I’d do off the clock…
I like the idea of cutting out the lawyers and legalese where possible, especially the cover-your-ass boilerplate crap. And in the US it really is insane how much lawyers are involved in everything.
Still, things like confidentiality might be nice to have some papertrail for. Things like your passwords, customer data etc. Not that I think you’d hire an employee who’d steal data, but you might have some pissed-off customer who’d claim you wronged him/her, and you’d have to prove… blah blah.
That doesn’t have to be a document written in legalese though. The thing about signatures is that they avoid “my word against yours” arguments, whereas one party can deny a handshake took place, or that the terms were clear. The one thing I liked about that CSR document I signed, was that it was written in plain English (which is funny, since I’m Danish, the company was Danish, and it was happening in Denmark, but there you go), and not in legalese. There were no threats about what would happen “in breach of contract” or anything. And the terms made sense – they weren’t particularly neccessary, but they made sense.
Again, I’m not saying oyur new hires are crooks, and you shouldn’t treat as that way either. But your customers might be unreasonable, litigious people (maybe even lawyers!) – and you can’t shake hands with them.
Another Coward
on 29 Mar 10@Brian – That’s totally irrelevant. VCs never agree to NDAs, working on a “friend-dee-ay” basis for exactly the reason you describe.
Employment is an entirely different arrangement. Having a confidentiality agreement with an employee in the event something goes wrong is another issue entirely. Further, companies that don’t take adequate measures to protect confidential information risk losing trade-secret protection under state law.
@DHH there’s example 2 of why you don’t get legal advice from commenters. It’s based on personal anecdotes and off-point examples.
Matt Mireles
on 29 Mar 10IP assignment seems like the most important provision. Also clarifying the person’s status as employee vs contractor is also material.
The rest is just bullshit.
But for the above two points alone, I think contracts are worth it.
tomslee
on 29 Mar 10Getting rid of forbidding bureaucracy and legalese is a great idea, but it is worth remembering that – although I’m sure you’re a lovely bunch of well-meaning people – new employees may need protection from you. Disputes do happen. Workplaces without regular employment reviews to keep expectations in line, and without writing to point to if things go wrong, can leave employees at the short end of the stick- and “well, you can always leave” is not the most collegial or constructive of responses.
So I applaud the effort, but do put yourselves in the position of your future employees and ask yourself who’s really taking the risk here?
Anon
on 29 Mar 10It sounds like a good idea. If I worked at 37 Signals I would feel very comfortable not signing a contract. Though at one particular company I worked for the contract was my idea, and because of past treatment of employees I was mentally preparing for a lawsuit. I am a student just starting out and would have been unable to live out the following school year if not for that money. In an ideal world I would have found something else, but it’s not always that easy. There were several reasons it was in my best interests to take the job despite not being able to fully trust them. So, it would make me wonder how employees of mine would feel if we didn’t have a contract. Maybe it only makes sense not to have one for established companies.
Nathan
on 29 Mar 10Employment contracts I’ve signed always make me feel awkward. I’ve signed some where I’m not supposed to be in contact with employees until a year or two after my departure date. So when I leave, I legally have to give up my friendships with coworkers? I still have relationships with former co-workers including a CEO but never knew if it was going to be enforced.
I agree with Anonymouse Coward, Non-competes can’t be enforced (atleast here in Canada). Especially if it has geographic restrictions (can’t work within XXkm of here). A former employee can’t legally prevent you from earning a living.
Brian Doll
on 29 Mar 10From the perspective of the company, it’s encouraging to see your continued reliance on real-life trust vs. covering your ass with contracts.
I wonder, though, how I’d feel working for a company that never put down on paper, what the details of my salary, stock, bonus and benefits are at the time of hire.
Mutual trust can take time to build. I can guess that because you have low turnover and self-admittedly happy employees that I should trust you too. Single twenty-somethings may love the no-contract love-fest. Folks with families and mortgages however, might want something on paper, even if it’s not in the form of a contract, to make sure everyone is on the same page about financials.
Bryan Sebastian
on 29 Mar 10In my opinion it all comes down to who you hire.
Knowing that 37 Signals is effective at hiring “Linchpins”, this will most likely work great. Companies that do not take the time to hire in the way 37 Signals does will most likely have to maintain the employee contract, as you cannot guarantee you are always getting a Linchpin type of person.
I feel the most important trait of a linchpin employee is their need to give. To me this need to give aslo represents honestly and you can always have a hand shake agreement with an honest person. It is dishonest, out for myself people, that cause the need for employee contracts. Hire honest, giving people and this will work.
Yes, I read Seth Godin’s Linchpin and believe a lot of what he says applies to these types of business situations.
John
on 29 Mar 10A past employer of mine gave me paperwork to sign that was clearly illegal and unenforceable. They said “give these to HR when you’re done.” I simply threw them out. It was never a problem. No one ever noticed that I never signed them.
Andy Parkinson
on 29 Mar 10I highly recommend two clauses.
1) Assignment of work – States that what a person creates for you is owned by you. Copyright law can be goofy. This removes any doubt.
2) NDA – This is more for clients. In my business, developers have access to a lot of sensitive information. The NDA stresses that any information that we have should be protected. Common sense? Maybe. But still important.
As one of your customers, your developers can learn a lot about what I’m working on and who I’m working with if they wanted to. Some of this is sensitive information. NDA is a good opportunity to stress how important it is to respect the nature of the information you’re keeping for me.
My contract is about 5 pages too. These are the only two sections I really care about though. I may have to spend some time chopping away!
JF
on 29 Mar 10Of course, since you loathe lawyers so much and think we’re unnecessary, why should I help you?
We don’t loathe lawyers. We like our lawyers. They’re essential for lawsuits, subpoenas, and the like. We’re just questioning the value of their product at the basic employment contract level.
marvis
on 29 Mar 10A good direction to go could be to just make the contract shorter, not do away with it entirely.
Why not try to shorten it to the essentials (responsibilities, salary, vacation) and write it in plain language instead of legalese?
mga
on 29 Mar 10My country requires having contracts with employees so they can apply for health and pension benefits. This is a requirement by law and it is not optional (your benefits are proportional to your salary). So the handshake thingie would be ever so nice but the government wouldn’t like it so much (and the employee wouldn’t like it either I guess).
You could just implement a non-assholic (panic-clause-free) contract. I know you mean we all love each other and we could hand-hold each other and the planet and the dolphins would be safer if we could just trust each other and all that but in the end it is better to put things in writing and not pretend that humans are perfect (as in “I remember what we agreed on five years ago when I started working for you guys”).
David Owens
on 29 Mar 10In my full-time job I signed a contract, but I work for a fairly large company. Honestly, it would be stupid for them to not have a contract.
I do work on the side for another really small company; we don’t have a contract per se. Just some emails back and forth that I’ll do X work for Y dollars. Every week after doing X work I get Y dollars (Y+paypal fees actually). That works there because we all know each other and we trust each other. But I’m not doing this for my profession either.
Frankly, I think you’d be stupid to not have contracts for your business and the type of money it makes. People like Anne exist for very practical reasons in our society.
Put the question this way, do you pay for the minimum car insurance? Minimum house/renter’s insurance? Minimum health coverage?
If you don’t do the minimums on any of those, and those are clearly for “just-in-case” type situations, why would you do less for your business?
Jeff Mackey
on 29 Mar 10I run a small web dev business, and also work for one of the big automotive companies as a contractor providing web dev services on an hourly basis.
I signed an employee agreement with a consulting company that has an existing services contract with the auto company. That agreement between me and the consulting shop dictates my hourly rate and outlines other general benefit info. That’s it. I would not feel comfortable working for them or anyone else without some sort of written agreement outlining payment terms for work provided.
Is that considered a “legal document”? Don’t know. That company could, and has, changed my hourly rate without me or them signing a new document. They just updated an entry somewhere in their payroll processing system.
Now, I can only assume that in order to give me a rate increase, that company had to renegotiate their contract with the auto company in order to keep their same margin percentage.
I also doubt UAW folks would ever work without a contact or some sort.
For my own business, I have refused to sign several NDAs presented to me by prospects. Never once has it prevented me from bidding on the project or even winning the work.
One company wanted to hire my services as an on-demand subcontractor for WordPress development, and wanted me to sign their ‘employee contract’. I refused to sign it stating I wasn’t going to be their employee. Since I refused, they wouldn’t work with me. Whatever. Their loss.
When I deal with designers for work I need for a given project (I’m no Photoshop guru), I simply come to an agreement via email regarding their bill rate. Done.
Tathagata
on 29 Mar 10The guys who built the Taj Mahal, apparently had their hands cut off so they couldn’t build anything similar. Rings a bell? Is that what we are trying to do by making our employees sign contracts?
If everything that matters is the quality of service and implementation, why bother so much about ideas getting stolen. Let the ideas spread.
Sorry, if this sounds a little utopian :)
DHH
on 29 Mar 10As Jason mentioned in the post, we’d still have a bullet list of benefits and responsibilities. But it would merely be a live-document Backpack page.
Kristen
on 29 Mar 10The lawyers that you like will thank you, as will your pocketbook, if you spend the money on the lawyers at the contract level as opposed to the dispute level. Having a lawyer drawing up the type of employment contract you want (even if it’s minimal and conveys only positive vibes) will ultimately be less espensive than any resulting litigation that would result from a “do-it-yourself” or scrapping the whole employment contract idea completely.
The most expensive lawsuits are always the ones where companies thought they didn’t need lawyers and could do it themselves. The value of a lawyer from the get-go is that they know what pitfalls to avoid.
In regards to noncompetes, they are certainly enforceable in the U.S. However, they must be reasonable, and there will be restrictions on enforceability. Consulting an attorney in the state in which you reside for a short 10 min. discussion would inform you of what would be needed to draw up an enforceable noncompete (and many lawyers wouldn’t even charge for that).
Scott
on 29 Mar 10Amen to employment at will. Too many people think that once they are hired, they should be fired only for egregious cause. That’s BS.
Anyone not kicking ass every day and delivering the best of the best to their employer should be looking over their shoulder because any company that settles for less than the best will get less. Less customers, less revenue, less profit.
It doesn’t have to be more complicated than this: “You’ll work here, we’ll pay you. If at any time we haven’t shown you that this is the best place to work or you haven’t shown us that you’re the best person for the job, then we’ll say our goodbyes and move on.” Employees that are scared off by this are not the ones you want anyway. I say do away with the contract.
Employment contracts are planning which is just guessing which cannot replace the facts which will show themselves in due time. Deal with the facts and decide on things as they come up, not trying to predict every scenario ahead of time (which is what lawyers tend to do).
p.s. What happened to “no counting vacation days”? http://37signals.com/svn/posts/2223-profits-freedom?45
Litigious jerk
on 29 Mar 10This post is a bit diffult to follow imho.
“The contract was drawn up by our lawyers a few years back, so there are no incremental costs each time we bring on a new employee”: So that’s a free “just in case” insurance now. Why scrap it?
“We could make a ”/workinghere” page at 37signals.com that clearly lays out what employees can expect from the company and what the company expects from the employees. ... You read it, we shake hands, and we start working together.” IANAL, but that sounds extremely similar to a contract to me…
In any case imo it’s always nice to have the agreement in written form. Trust with an insurance policy ;-)
Andreas Dantz
on 29 Mar 10I’m about to hire my first employee. Reading your headline I thought, stupid idea just to do something different than everybody else.
While reading the article and comments my thoughts flipped back and forth on good idea/bad idea.
Since I have to call my lawyer tomorrow anyway, I’ll check the idea against german laws.
I think our contract will be at least a lot shorter than all contracts I’ve signed in the past. Since you’re right, most clauses won’t be enforceable in reality :)
Shane Mac
on 29 Mar 10I wonder this all the time. To me, I think it is more about planning in case something might happen and someone got crazy and wanted to sue.
The thing about this though is that people usually sue when there is a miss communication between people and details are not spelled out clearly in the beginning. The transparency (and no BS) style of your company along with spelling out the details on your website, in plain view, of everything that is to be expected could probably alleviate your team ever encountering a situation like this. If you never have a legal dispute with internal employees then do you need a contract? That is probably up for debate and one which I have no experience or knowledge with.
To me, business is about respect. It is about recognizing that we can all learn from each other yet we need to know who does what and why they do it. When all is open things get done.
When we realize that business and careers are a major part of all of our lives then maybe we can start doing better business, cut the bs, and together build better careers. Better lives.
Keep being the inspiration to all that I am doing, have done, and the reason I just finished my book “Stop With All The BS.” You are mentioned in it more than once and I can honestly say that the reason I wrote it was largely influenced by your word. To that I say…Thank you.
-Shane Mac Marketing Manager http://www.gist.com @shanemacsays
(Back to work…Thanks for the distraction. It was a worthwhile one.)
Anonymous Coward
on 29 Mar 10Why NOT have one. It’s eliminates any chance of confusion of responsibilities, and benefits.
From the employees perspective, it reduces stress.
Having a contract that clearly states how much I’ll: earn, bonus, retirement benefits, healthcare, etc is desired.
It also sets the mutual expectation between the employee and employer so that no confusion can happen.
Erica Cosminsky
on 29 Mar 10When I was working as an HR manager, every time I hired a pharmacist they signed a 25 page contract that went on and on about their responsibilities and the companies and if they didn’t stay with the company for 3 years they would have to return X% of their sign on bonus. During the 2 years I was in the position, we have 8 pharmacists who should have returned more than $6,000 a piece, but the pharmacy had no real legal way to pursue the money.
As a small business owner, I do require all of my contractors to sign an NDA, regarding contacting my clients and confidentiality of client transcript information. Most of my “contract” information is in my job postings. I’m just upfront about using Basecamp and certain behaviors that I have no problem terminating over.
From an HR perspective, posting the requirements on the website and making them acknowledge them is just as good as signing the contract, just as a website’s terms of service are valid because you use the site. I think it would also create a tighter bond within your company.
Larry
on 29 Mar 10It’s not a CYA document shielding the company from a bad choice in who they employ… it’s a CYA covering the company from a ton of potential government regulations that could make life miserable for all involved with just one bad hire.
Michael
on 29 Mar 10I agree with two above comments and have one more:
1. Rework your contract to say what you want to say.
2. Protect your employees by giving them rights. Employers win disputes by default because they are bigger, more experienced and reputable.
3. As a customer, I want to know your employees understand the risks of abusing my data. I am not comfortable using vendors who make handshake deals with their IT staff, etc.
Michael Langford
on 29 Mar 10You need to clearly state the ownership of the code in an agreement, otherwise, I’m pretty sure its the developers code in most ambiguous situations:
Random google link about copyright law: http://www.poznaklaw.com/articles/workforhire.htm
You may just want to say “Anything code you do in the office you acknowledge it’s 37Signals code in a work for hire employment arrangement, unless you get a written document stating otherwise”.
This is probably more important for 37 Signals than many other firms, because people could likely argue they’re NOT employees if they want to as you don’t match all of the IRS’s test (many of which deal with controlling the employee’s work hours, location, providing a desk, etc).
Berserk
on 29 Mar 10On the other side of the big pond I would look highly suspicious on a company that doesn’t want to sign an employment contract with me. Are they trying to avoid taxes? If I need to borrow money from a bank, how will I prove that I am employed? What if they dislike me tomorrow, and its my word against theirs as to what we agreed upon?
My current contract is about one page long, most of it concerns salary, vacation days, time of termination and such. There is something between five pages of bla-bla and a handshake. Why not put down the most important points on a sheet of paper and a couple of signatures?
Regarding contracts: If it’s not on paper it doesn’t exist.
Rob Kaufman
on 29 Mar 10I think you and so many people miss the real point of a contract. The original reason behind contracts wasn’t litigation, they came into standard practice when litigation wasn’t really viable or common. The point of a contract is to make clear, in writing what expectations are. Two people agree on something verbally and the minute thaey shake hands both start to remember slightly different version of the agreement. The contract should act as a record of the agreement, be referred to when there is disagreement and amended when the agreement needs changing. We don’t however do that, and that sucks. We write them in legalize and we let them fall by the way side, only whipping them out when we threaten to sue.
Anthony
on 29 Mar 10We have 150+ people and don’t use employment contracts. I think you’re right to ditch them. Creating a /workinghere URL is a neat idea.
Noncompetes are pointless too. They’re unenforceable.
Jesse Armand
on 29 Mar 10I think contracts are always necessary.
The problem is most employment contracts are overly complicated, thus most employees don’t even read it, and they couldn’t understand it completely.
Especially a novice who was just hired on his/her first job. He/she may not know or understand the consequences of his/her future actions related to the contract. The company or the hiring manager doesn’t even explain the important points in detail, or in a way that they could understand.
Mostly they just gave the contract to the newly hired employee, and expect them to read it and understand it him/herself, without any explanation.
D. C. Toedt
on 29 Mar 10Sure, overreaching employment agreements can be obnoxious. But the Kumbaya, we’re-all-in-this-together enthusiasm disappears pretty quickly when an employee gets fired “unjustly.” An employer that doesn’t have some basic ground rules, set out in writing and signed on the dotted line by its employees, is just asking to be dragged into court by a creative lawyer claiming that the fired employee was wrongful terminated, retaliated against, etc. And as most people know, the way the judicial system is set up, once you get dragged into court it can be damned difficult to get out without spending a lot of calendar time, management time, and money.
A tech company, especially, should make sure its employees have agreed that the company will own their work-related innovations. If there’s even a shred of doubt, a fired employee’s lawyer will almost certainly try to make hay out of that fact — and the company’s board of directors and major investors are unlikely to look fondly on management for having allowed the doubt to arise.
A few well-chosen words can be cheap litigation insurance.
Matt
on 29 Mar 10AFAIK, most of 37Signals employees work remotely from home. In this case, it would be virtually impossible to have a statement along these lines as you would never be able to prove whose time the employee was working on.
Gideon
on 29 Mar 10I like this idea, but Micheal made a very valid point: your customers need to know that the data in 37signals apps is secure on all fronts.
Unless you film the handshake its not going to hold up in court. Why not make a live document that outlines the contract and have your employees check it off whenever its changed? That seems pretty simple – perhaps simpler than physically shaking hands with employees based all around the wold.
Jeff Mackey
on 29 Mar 10I have another comment:
If Ryan or Jamis quit to form 38signals, offering Highcamp, of course you could sue them for copyright infringement. You don’t need an employee contract for that since it’s covered by your copyright/trademarks.
But what about you and David?
I can only assume that your business relationship with DHH is covered by some sort of contract?
You two have what appears to be a very healthy, prosperous business partnership. What if that ever turned sour?
I know you say that “what if” type questions are seeds of complexity—and that is a good point, but they’re also used as a basis for protection.
Rahul
on 29 Mar 10If you guys decide to write such a document on Backpack or wherever, please share it with us. It would be a great example to point to in order to bring about similar changes in other organisations.
Since you mentioned it, I’m also extremely curious how 37s treats salary. I know it’s probably hard to go there since it’s very personal and differs from person to person, but a high level overview of your philosophy regarding starting salary and how that grows over time would be really interesting to read about.
Thanks again for sharing.
Brian D.
on 29 Mar 10People change, bad stuff happens, an employee’s spouse may have different ideas about who owns the IP to their work. Why not change the contract to spell out the good stuff that you don’t care about; for example, explicitly state that the employee is allowed to leave to go to a competitor as long as they don’t reuse actual code. That way instead of the awkward feeling, the employee thinks you’re even cooler as they sign the contract, but you still limit the downside risk. Either way, I wouldn’t have a problem signing a reasonable contract as an employee and as an owner I’d be concerned about an employee that refused to sign.
jonathan
on 29 Mar 10For the first 3 years of my company’s existence, our “contracts” were essentially offer letters, outlining what the employee was expected to do and what the company was expected to do in return.
As we’ve grown, however, we needed more specific information in these contracts, especially to satisfy Fiji law which seems to require all employees to have contracts written in boring, unintelligible legalese.
I’ve accepted that now.
Just because my staff has to sign contracts certainly doesn’t mean I don’t trust them, though. As a company, we still have the obligation to do the right thing when it comes to managing and employing people.
Also…people change and situations change. There should be protection for both company and employee at times. Handshakes don’t typically provide enough security for those unfortunate times that protection is needed.
Graham
on 29 Mar 10I’m not a lawyer and I agree with the sentiment, but I cannot imagine stepping into court over on employee dispute with NO paper contract, just a printed out copy of a web page with NO clear way to prove which version of that page the employee saw on what date. Any “normal” judge in the US would absolutely rip your “web page contract” to shreds.
And you can’t make the claim that the employees agree to the document by way that they didn’t act to actively reject it in email/writing/etc. That’s just like the old “if you don’t mail the CD back then you accept our contract” music subscription services that are fortunately long gone now.
Anything document that changes over time should ALWAYS be notarized and filed away each time an employee is required to read/accept it, as much as it pains me to say it. Otherwise, the employee can just say in court that they never agreed to the document.
Spectral
on 29 Mar 10If your company is honorable enough to work that way then more power to you, but in general the boss-employee relationship is one of unequal power—I have definitely had trouble with a boss who would make all kinds of extravagant promises about amount and frequency of compensation that he would then not actually follow through with, so an employment contract that put those things in writing sounds like a good thing!
Anon
on 29 Mar 10I’m currently in an employment dispute, approaching legal resolution, due to my company maintaining a “living document”, aka “attempting to change the terms under which they will pay me my money”. I’m glad I had a signed contract from them stating the exact conditions. You should definitely consider the idea of your employment contracts as a promise to the employee, not just a way to say “we don’t trust you.”
Anonymous Coward
on 29 Mar 1037S wants to bring their “simplicity” mantra to the legal profession. Maybe they should get JD degrees and pass the bar first. That would be keeping it “real.”
Antoine Valot
on 29 Mar 10There’s a bunch of underlying issues here. Intellectual property is a shaky concept, especially in the software world. The “employee” concept is also increasingly ill-suited to a post-industrial world, and to a creative and talent economy.
One could argue that there’s a basic philosophical problem with retaining single ownership of a shared creation, when there isn’t a major capital investment to point to. At the same time, there’s obvious empirical evidence for the value of strong leadership and vision in software development.
You guys make it work pretty well, and I like how you casually lift the veil on a whole host of dysfunctional paradigms. There’s got to be a better model out there somewhere. But what, and where?
David Andersen
on 29 Mar 10Honorable people won’t mind signing a contract and no one can predict the future of a relationship. Reasonable contracts make sense for everyone.
“Good fences make good neighbors.” R. Frost
Mark C. Webster
on 29 Mar 10I think employment contracts have value. They are the difference between marriage and dating.
The contract, regardless of it needs to be legally enforced, shows a level of commitment. It states that we’re both going into this thing based on an agreement of what we both expect from the other person. And by adding a little friction, it prevents either party from just dropping the other at the first sign of trouble. When you come into a new organization, there can be a little discomfort while everyone settles in and the contract usually says “We’re not just going to drop you at the first sign of trouble. We take this seriously.”
Plus, the process of reviewing and agreeing to the contract has value, regardless of the details of the actual contract. It helps to have a formal process to go through, to make sure everyone is on the same page.
Anonymous
on 29 Mar 10Two points:
• An employment contract is something like an initiation rite. In our western culture, a simple handshake does not hold much ritual value; the accepted rite is to sign a professional looking contract on a stylish designer clipboard with a golden $100 pen. Well, that’s an exaggeration, but I think it’s nice to have such a rite.
• Contracts are not for the case when everything is working out fine, they only come into play when things go horribly wrong, i.e. when things go to court. Does a simplified employment contract hold up in court? Not that it has much spirit left when it comes to that, but you know how the legal nitpicking goes.
Peter
on 29 Mar 10Having a contract can provide your employees access to lots of infrastructure that happens to be tied in to contracts (however silly that may be).
For example, a “real” contract may get you access to credit/loans, to renting an appartment, to a visa application, and so on.
BB
on 29 Mar 104 years ago, when I worked at IBM they made me sign a contract in which I ‘voluntarily’ allowed them to pull my consumer reccords (drivers and credit history). Ofcourse nothing is voluntarily at all here, but they had their reasons to put it that way. It was in the wake of the Osama actions, and IBM needed to prove their labs were safe… I had nothing to hide, so choosed to not jeopardize my employment, but I still remember it as a big Fuck-You from IBM.
Nathan L. Walls
on 29 Mar 10Regarding lawsuits from former employees in at-will states, two things will help you more than the contract will:
- Meet with your team members in a one-to-one setting regularly – I meet with mine every two weeks – and let them know how you think they’re doing. Be clear and specific.
- Behave fairly and consistently.
Reviewing job responsibilities does not have to be in contract language, just something that everyone reads, discusses and internalizes. Taking the time to talk through differing perspectives on expectations early is going solve a lot of potential problems early.
Helmut Baker
on 29 Mar 10I prefer ‘service level agreement’ over contract. If you are to hire someone to do the service (be it hire an employee/consultant, or you ‘hire’ a company to work for), it helps if you put the service level agreement in writing. That way, it is clear what’s expected by both parties, after which you can shake on it, if you wish so.
Without having a service level agreement in writing, everything is improvised, which may or may not be OK for the involved parties. As far as I go, I prefer less improv and more clarity; however, perhaps that’s just me.
On another point you made in your post, I think publishing a workinghere resource on your web site is one of the stupidest ideas I’ve ever heard. Like you’ve said it yourself, things change incessantly, and so this resource would be very volatile. Only a brain-dead fool would ever fall for that. So one day I visit your workinghere page and see lots of things I like, I apply and go through the hand-shake process, only to learn a month later that workinghere got heavily refactored and now I’m looking at a completely different deal.
Where in that is my recourse, my defense line? You reserve the right to keep changing your workinghere resource at will, while the employees who fell for the older versions are now fucked.
Nice.
Ares
on 29 Mar 10There is a rumor, that Mark Zuckerberg (facebook) stole the facebook idea from 3 other people who had asked him to do it for them. Their “contract” was a verbal, and a handshake.
Now these 3 people, are claiming facebook was their idea, and they want compensation from facebook. It is a 5+ year long lawsuit, which would have never happened if they had asked him to sign a contract.
So, what do you think?
Scott
on 29 Mar 10I never understood people that sue for wrongful termination in an at-will job. WTF? Why would you want to work somewhere where they obviously don’t want you? Why would you want to go back? Why would you want to deal with them for months or years in litigation? Life’s too short for that nonsense.
That’s life folks. Some people will think you’re valuable and you’ll be a good fit. Some won’t. That’s how it works. If a company lets you go, that’s probably a good sign to you that you haven’t found your fit and life’s giving you the kick in the pants to go find it!
Lawyers in this country have got it made in the shade. And it’s sad.
John
on 29 Mar 10I like the handshake. It’s simple, it holds more meaning, and it shows a bond of trust.
I used to work for a crap company that had employment contracts. They still got sued by ex-employees. They lost in several cases and lost a whole bunch of money.
Contrast that with one of my first jobs, I worked at a tuxedo place. I signed the necessary Government stuff. Shook the owner’s hand. Then I went to work. It’s still the best job I ever had – not far as compensation – but overall treatment was terrific.
It may depend on the state, but company size (number of employees) may allow you to certain protections where a contract may not be needed.
Rusched
on 29 Mar 10A contract is only really needed when things go wrong. People change, circumstances change, friends become enemies. It happens every single day. No one wants to need this kind of business insurance no more than we want to need health insurance.
This reminds me of part of the essay from Rework regarding long term business plans being nothing more than guessing. Going without a contract sounds like you’re planning on everything being fine. Unless you’re a fortune teller you can’t tell me you will not need a contract with someone.
Yep
on 29 Mar 10@Helmut Baker: “Where in that is my recourse, my defense line?”
A: You’re recourse is you quit. A company has no obligation to predict the future and maintain an environment that you thought you were going into. But they also don’t want a revolving door of hiring under false pretenses so they’re not likely to create the scenario you fear. If you are valuable to them, they won’t screw you because they don’t want you to quit. But, if you do feel screwed, then you go find something else.
Yep
on 29 Mar 10@Helmut Baker: “Where in that is my recourse, my defense line?”
A: Your recourse is you quit. A company has no obligation to predict the future and maintain an environment that you thought you were going into. But they also don’t want a revolving door of hiring under false pretenses so they’re not likely to create the scenario you fear. If you are valuable to them, they won’t screw you because they don’t want you to quit. But, if you do feel screwed, then you go find something else.
Paul
on 29 Mar 10So, as an employee, my benefits and responsibilities would live on a webpage that could be changed anytime without me being notified? Call me risk-averse, but I’d say a big “No thanks” to that.
Contracts are good – they clearly state the responsibilites of both employers and employees, and allow common ground for people and companies to fall back on should a relationship turn sour. Yes, a lot of it is legalese and the basis of a contract is lack of trust on both parties, but trust is earned over time, not automatically granted at the start of a working relationship.
You, as an employer, have no guarantees about a person’s future behaviour (regardless of how good your instincts are) and the employee has no guarantees of your future behaviour as a company or employer (regardless of your previous record).
Contracts protect you both. They may not be that “cool” to look at or read through, but they exist for a sane and wise purpose. I say live with and refine what you already have.
JF
on 29 Mar 10So, as an employee, my benefits and responsibilities would live on a webpage that could be changed anytime without me being notified? Call me risk-averse, but I’d say a big “No thanks” to that.
It’s easy for that to sound scary, but write up some actual scenarios that would scare you. I’d like to see the list so I can respond.
We all have to trust each other. If all we have is a piece of paper between us to keep us honest, then what’s the point of working together?
MK
on 29 Mar 10I’ve enjoyed the discussion here, and agree there are valuable points made both for and against scrapping the Employee contract.
Specifically re Matt’s post about employees who work from home: How about a simple statement that says “any work produced for 37signals, for which the employee was compensated by 37signals, is the property of 37signals.”
TJ Stankus
on 29 Mar 10Dischord Records has been operating for 30 years with handshake “contracts”. They’ve managed to stay in business, flourish, maintain their integrity, and circumvent pretty much the entire crummy mainstream music industry.
saxe
on 29 Mar 10I like the intent of a “Handshake Company”. Unfortunately it seems as though our country is no longer a Handshake Country. The morality has plummeted so far, that it makes it difficult. But if it works, let me know and I’ll consider it at my company. ;)
Ian
on 29 Mar 10“just in case” examples:
- seat belts - project backups - firewalls - terms and conditions
etc.
Deltaplan
on 29 Mar 10I have actually worked like that for the last 5 years, but not in an employer/employee relationship, more like a kind of collaboration between several independent workers who act sometimes as customers, sometimes as service provider, etc…
For example, with my two main “employers”, for which I’ve worked almost continuously in these 5 years, I’ve never had a single written contract. They have sometimes worked for me, and in these cases there has never been any written contract either.
We all share some developers who are located in another country, and with them there has never been any written contract either.
The ONLY recurring problem with that situation is… the payment. In many cases, we don’t even know how much we will earn from a given work. We just agree that we will either split 50/50 what’s left after all the expenses are paid, if we are working equally on the project, or we agree that the one who only does a small contribution will get a fixed price for his work. The problem is : since we all rely on our final customers payments to be able to pay the share of the others, we just can’t figure out when we will be paid. And this becomes very often a problem since we don’t always have all the ability to deal with delayed payments.
I must admit that a written contract would make it clear when the payments would be due to every person involved in the project, but in such a case it would often put the pressure on a single person, the one who has the contract with the final customer and will pay the other ones, once he get the payments from the customer. In such a case, when the payment is delayed, if there were written contracts with fixed payment dates, it would be easier for the one who get payed, but the one who pays the others would probably have to borrow the money from a bank to pay the others before getting the real payment from the final customer. And we ALSO want to avoid dealing with banks as much as we can…
Helmut Baker
on 29 Mar 10“It’s easy for that to sound scary, but write up some actual scenarios that would scare you. I’d like to see the list so I can respond.”
You hire me on a handshake agreement that I’ll have 28 days of paid vacation, as it states on your company’s web page. I work for a year, after which I book a month of paid vacation, and you tell me “not so fast, buddy boy, the company policy is that all employees only have two weeks paid vacation!” Then I mention my initial understanding that I was hired under the 28 paid vacation days agreement, and you ask me where did I get that info from, and I say “from your company’s web site”, and you take me by the hand and browse to that page and voila!, it says “two weeks paid time.”
Touche!
JF
on 29 Mar 10Helmut:
We don’t have vacation limits. The limit is “be reasonable”. If we think you’re taking too much time (or not enough), we’ll talk to you about it.
Alejandro Moreno
on 29 Mar 10I think the problem is language. Legalese is the attempt at eliminating the inherent vagueness and ambiguity in language; a vagueness and ambiguity that a litigious jerk will try to exploit sooner or later. And how much does that cost?
However, you could have an Agreement page in Backpack as you mention, and also a Legalese translation. “By being in the 37signals payroll you agree to …” I think that’s still a contract, except nobody signs, and there would have to be some sort of notification process whenever the online contract is changed.
Argh, headache.
Jean-Pierre Bobbaers
on 29 Mar 10You can have a backpack page. Yes…..
A contract is there to protect the weak party in the relationship. So ask yourself on what moment could you be weak ?
EU law protects the weak party, thats why we have employment contracts by law. The Protection of the Weak Party
I believe it is better to ask this question to your staff.
Steve Pilon
on 29 Mar 10If the contract doesn’t specify a length of term, or define specific benefits due upon separation (golden parachute) or define other similar and specific terms, then it isn’t really much an “employment contract” anyway. It is more like a laundry list of what someone has to agree to in order to work for you. If their employment is truly ‘at will’ - and it sounds like it is - then all you really need is a simple agreement that clarifies the essentials, like confidentiality and ownership of work product. Still, I would put it on paper and keep a signed copy by each employee. That said, I don’t think you need five pages of legalese to get the job done. If you want to be “a handshake company,” do it in the form of writing up a one page, plain language version of the rules of the road, and have people sign that upon hire. You can post it on your site too, if you want to, but I think there should be some sort of paper record of your mutual understanding at the time of hire—“just in case.”
Ruben A
on 29 Mar 10How ‘bout just going with the flow? It’s like life insurance, death insurance like I call it, you buy it and hope you never need it. In this case, you don’t buy it, you sign it. Employee contracts are like that, you have them and hope you never have to revert to them.
It would only take one lost lawsuit to realize how important they are. In your case, it’s not there for you to enforce the contracts, but to back you up when someone comes back at you with some dumb lawsuit that would have otherwise had teeth.
And yes, legal counsel in my books is a form of insurance, as it is meant to protect your interests from someone’s attempt at an unjust gain off your back.
Now, on the other hand, ‘stupid’ can’t protect you for very long, if at all. It is useless if you have an employee contract and you as the employer act stupid.
Just saying…
BJ Neilsen
on 29 Mar 10I used to work at a climbing gym where climbers had to sign contracts basically stating if you get hurt, you don’t sue. Pretty standard for any highly physical recreational gym.
At one point I remember my boss telling me that the contracts actually held no real legal barrier from being sued in the event someone did get hurt. So I asked the inevitable question… “Why are we making people sign them?”
The answer: “Just in case”.
In a world where any crafty lawyer can get around signed contracts, I have to agree that it doesn’t make a ton of sense to go through the pomp and circumstance of signing them. Not sure if this is true in every circumstance (probably isn’t, by a long shot), but I do agree that some instances it’s just stupid.
Neil Middleton
on 29 Mar 10I would not accept a job without a signed contract. If I don’t have a signed contract, who’s to say that I even have a job?
Whilst trust is a wonderful thing, with employment I would have thought people aren’t willing to bet their current livelihood on it…
Benjamin Welch
on 29 Mar 10All this shit becomes necessary when it’s time to blame someone. “see, you broke this rule here, that means I can do blah.” Totally fucked system. Most of this crap is to protect people’s asses. On both sides.
And I’m a firm believer in Karma. So, even if some asshole “gets away” with something because I didn’t have an actionable contract in place, he’ll get what’s coming to him.
All this can be avoided by getting better at hiring people.
Scott Semple
on 29 Mar 10Employment contracts aren’t worth the hassle. They’re used (and written) for people that shouldn’t be hired in the first place.
But even if they are written, they never work, because a lack of character, lack of honesty, lack of work ethic will always be expressed whether there’s a contractual threat in place or not.
I’ve hired several people, and mistakenly trusted my “systems” to provide sufficient guidance too many times to count. It’s always disappointing. A person’s lack of integrity will always find a way around contractual types of controls.
Writing an employment contract is wasted effort that would be better used by putting that energy into the hiring and screening process.
The best bet is to hire strong individuals with integrity and character. These people’s innate high standards are self-governing, and good work will naturally happen as a result.
I agree with Scott Semple
on 29 Mar 10@Neil: You don’t get it. You never “have” a job. A job is not “yours” – it’s not a thing that a company gives you and then you hold onto like a treasured trinket. A position is the company’s and you’re simply filling it for as long as they need someone in that position and that they feel that someone should be you. How do you know if you even have a job? If you keep showing up and you keep getting paid – you have a job. Not much more complicated than that.
People need to realize that a job is an opportunity for you to do work for a someone. No more. No less. It’s not something that’s earned or granted or given or promised in any way, shape, or form. And that’s how it should be. Once people start looking at it any other way, that’s when the trouble starts.
Scott Willman
on 29 Mar 10Prince demonstrated this same approach when he signed Larry Graham (Sly and the Family Stone) to his label. He talks a bit about exactly this concept in this interview, about 6 minutes in:
http://www.youtube.com/watch?v=2etGt8FwoYE&NR=1
DHH
on 29 Mar 10Re: employee buy-in, that was the +1 list pictured a while back on SvN. Everyone already agreed to turn to the simple checklist of benefits and responsibilities. We’re exploring whether there’s anything we’ve missed in our assessment of things.
BTW, employment contracts are certainly no defense for getting sued. They may or may not help you if you do, though. We’re weighing the impact (likelihood times potential damages) vs our dislike of contracts here.
Denny Deaton
on 30 Mar 10I really like this idea a lot. Cut the fluff, state the necessities and update it when something changes. I think most contracts and general employee conduct guidelines are changing today, regardless of what you sign when you start with the company. Sometimes the underlying policies change for the good, sometimes for the bad.
I like the idea of a web-based live document, it would be in one centralized place to be viewed by all employees, at any time. It would be nice to notify employees when the document is changed, and even point out what changed (and why, if possible). That way no one is kept in the dark and should an incident occur there would be no question whether they were informed or not.
People change, companies change, business is changing the world is changing. There is no reason that an employee should expect a company to stick with the same set of rules on their last day as it did on first. If the company is worth working for to begin with then the employee will greatly benefit from a progressive set of policies and guidelines. Ideally it would always improve on their behalf.
Richard McIntyre
on 30 Mar 10It’s insurance!
When you have one you don’t need it, when you don’t bother you wish you did.
Is actually what most insurance companies base billions of dollars of business on.
Jeff K. Ward
on 30 Mar 10Or at the very least, simplify the contract.
Great TED talk about this here:
“Let’s simplify legal jargon!” by Alan Siegel
Anonymous Coward
on 30 Mar 10Is actually what most insurance companies base billions of dollars of business on.
Yes it is, but their premiums aren’t anywhere near lawyer fees.
Anonymous Coward
on 30 Mar 10I love this post and this thinking. However, I’d worry that without a contract you might not have any recourse against employees that steal your ideas, code, customer information? I could be wrong about that, but it’s possibly something I’d consider. i.e. what protection against rogue employees do your customers have?
Interesting post…we don’t like contracts either and just whip out standard employment agreements that make people feel “comfortable” but tend to never be looked at again.
Jesse Lamb
on 30 Mar 10First off, I am a lawyer, but this isn’t legal advice, and I’m not your attorney. :)
Having a writing goes beyond issues of trust. At least, beyond trust of the individual. A writing is there as an affordance to human frailty. We simply aren’t very good at communicating and understanding things comprehensively, and we aren’t very good at remembering those things we do understand. So we write it down.
“Just in case” may be a weak argument, but let me try to give it a fair hearing at least before dismissing it.
A contract is just an agreement between two parties that the law will enforce. And, although there are some notable exceptions, a contract doesn’t have to be in writing to be formed. The advantages of having the agreement as a writing that’s signed are, among others:
(1) the formality of a writing assures that parties can be objectively treat as if they’ve entered an enforceable agreement, ‘just in case’ they don’t subjectively appreciate the import of what they’ve done; (2) the agreement is memorialized in a way that’s resistant to imperfect recollection, ‘just in case’ each party later remembers the agreement differently; (3) the parties are on notice of what the agreement is, ‘just in case’ there is a defect in either’s understanding; (4) and the parties can override any default provisions of law that may apply, or otherwise may materially change the agreement, ‘just in case’ the defaults are unfavorable or counterintuitive.
Advantage (1) probably isn’t of much use in the employment setting because a reasonable person under the circumstances would know they’ve entered an agreement, whether or not there was a writing.
Advantage (2) is useful even when you are hiring great people. Memories fail and sometimes people harbor misunderstandings of their relationship based on bad recollection. The writing can serve as a reference to correct a misremembering.
Advantage (3) is probably the strongest. By making a writing you either resolve any misunderstandings or remove them through the ‘integration clause,’ which says that the writing comprises the entire agreement between the parties. This likewise stops problems before they start.
Advantage (4) is useful because the default provisions of law usually only come in to fill the gaps in the parties’ agreements, and without a writing there are likely more gaps to fill. And unless you’re a practicing attorney in the state where the agreement is formed and you’re familiar with the UCC, it’s hard to know what agreement you’d actually end up with once you apply the law.
The big “Just in case” though may be ‘just in case’ there is a dispute. But I contend that by having a writing you are actually decreasing the chances that a dispute arises, not just covering yourself in case it does. That goes beyond insurance.
Regarding the Backpack page, generally speaking employee handbooks are considered part of the contract between employee and employer, so you may be able to move most of the substance of the contract into a BackPack page and supplement with a simple one or two-page written agreement. You should consult your attorney about that though. I’m not licensed in Illinois yet and don’t know the rules there.
P.S. I’ll be at LessConf if you want to talk about this some more.
Tim
on 30 Mar 10Fantastic discussion, and, ideally, we’d all like to operate on a handshake.
Unfortunately, we’re not all working in a crucible of innovation for forward thinking like 37signals (and other like-companies).
And the reality is, you do need NDAs in some situations.
Developing my first iPhone app, I definitely went for an NDA with a third party (freelancers). I do like Garret’s approach with FrieNDA’s though.
Scott Semple’s post is excellent. Instead of wasting time on the legalese and fear, spend time working with the person in a 2 week (or whatever) trial, or Googling them, or checking them on LinkedIn, etc etc.
Employee contracts are evil
on 30 Mar 10The first thing I had to do on my first day of work was sign a 15-page employee contract full of legal BS. I read through the first page or two and it seemed like the standard “blah blah” crap. I didn’t read the whole thing as I kind of felt rushed to sign it, but it was a big mistake. Had I known what’s in it, I would NOT have accepted the terms it came with. When I got home that day I sat down and read the entire agreement. it was a HUGE turnoff. It basically said that I cannot have a job or open my own business for 18 months after I leave the company! What the heck? I still have that bitterness in me and it was a very negative first impression/interaction with the company where I’m spending 8-10 hours every day :(
Jonathon Suggs
on 30 Mar 10The grass is always greener… When you are a small company you want to be and act like a big company. Once you overcome the small business hurdles you long for the days of the small company feel. As a (very) small company, my goal/vision is to never lose sight of the handshake. Even if I ever do surpass the small company threshold I still think its a valuable cornerstone of your core policy to put meaning behind “the handshake” because at the end of the day you are only as valuable as “your word” and your handshake is your signature on any agreement you enter into.
Anonymous Coward
on 30 Mar 10Just go for it, 37signals! See the result yourself.
pwb
on 30 Mar 10I say “go for it”. I would suggest a one-pager in plain English outlining pay and benefits. Perhaps a sentence or two to the effect that “employer/employee will behave reasonably”. I’m wondering how useful a signature really is?
One of the questions you asked which no one has answered is if anyone has ever experienced an employment lawsuit and if any contracts were helpful. I’ve worked 20 years at big companies and small and can say “no and no”. If someone wants to sue, they will sue no matter what any contract says.
What many posters are missing here is that 37s wants to hire people who also think lengthy employment contracts are lame. And that the “insurance” argument is dumb.
The funny thing about contracts is they never get smaller. They just keep growing and growing and growing and becoming less and less intelligible to normal people.
Mike G
on 30 Mar 10You may not loathe lawyers, but you do loathe dogma. That’s what I love about you guys. Keep up the good work!
pht
on 30 Mar 10Case study : vacations. Your rule is “be reasonable”. Nice. Put that in the hands of any pointy haired boss, add a little project stress, and you can see how the definition of “reasonable” can vary. Contracts just help define some common and aggreed terms. If the terms are so obvious that you get live without having them being defined, that’s great, and probably sustainable in a small biz. Wouldn’t trust MegaCorp Inc. with it.
Jim Jeffers
on 30 Mar 10Surely it can’t be this absolute. Perhaps you could identify the few useful parts of an employee contract. Then, move the rest of your information over to your /workinghere page and have a very simple but potentially effective employment contract without all the crap. That way you can simplify your process and still mitigate some of the risk you would incur from losing the contracts completely?
Jim Jeffers
on 30 Mar 10Oh another thing I worked at a company that had the same philosophy on vacation time. Prior to that I worked at a company that offered 5 weeks PTO in a combined pool for holiday/sick days/vacation. I actually preferred the limited / finite philosophy only because I could never tell if I was abusing my PTO with the “reasonable” system. It felt akward asking for time off and I ended up taking less time off while working at that company than my prior job. If that is your goal then this is proof that it works. I think this could easily be mitigated by specifying a range of what is considered “reasonable” so I as an employee could feel comfortable utilizing my paid time off. Providing loose constraints and leaving them flexible would be the best of both approaches from my experience.
Matt Carey
on 30 Mar 10We don’t have a contract for our employees. We have a single side of A4 which states their role and what we offer in return (wage, holiday and benefits). Apart from the wage all this could go onto a single shareable page as the benefits are the same for everyone. We like to keep it simple too.
Romain
on 30 Mar 10Jesse Lamb pretty it much nailed it.
I think you guys are more considering getting rid of “lengthy legalese” because, in your opinion, it is an unecessary overhead than scrapping employment contracts altogether.
Sometimes “conventional wisdom” exists for a good reason. The key is to find that good reason and to focus on it.
Neal
on 30 Mar 10at will employment sucks. it’s better than staying at a job you don’t have to, but it’s worse than having a finite severance offer. i try to negotiate 2 weeks severance into my employment contracts, so i am confident i will land on my feet upon departure.
although, looking back at my last 3 jobs, all 3 of them at will… 2 of them volunteered severance, and the other one might as well have. these have all been for small companies where people are decent. at a large corporation i would insist on a formal agreement, because you can’t trust those tie-wearing mother fuckers.
Neal
on 30 Mar 10don’t have to => don’t like
JB
on 30 Mar 10Peter Moran
on 30 Mar 10Reminds me a little of how Tony Wilson ran (mostly very successfully) Factory Records. Only cost them when they got into trouble financially, but by then they’d created much genius. http://www.factoryrecords.net/
Brock
on 30 Mar 10I personally hope you continue to use employee contracts, if not to protect your data, assets, rights, etc., then to protect your clients’. You have an incredible amount of confidential business data at your fingertips and you need to make sure that your employees treat it as sensitively and discretely as possible. In this day and age, this must be legally enforced.
Bradley
on 30 Mar 10I’ve worked for companies (signed contracts) and for myself (no contracts). No matter what the contract says, there are no guarantees when a company decides to RIF you for whatever reason. If the info is the same, aside from salary, for all employees and contractors then, definitely publish on the web. It just makes sense. It all boils down to trust. No piece of paper, no matter how much it covers or how legal the language, will take the place of skills and trust. To legally enforce a broken contract takes time and money which most small-medium businesses usually won’t pursue.
Justin Reese
on 30 Mar 10I’ve worked for a marketing company with a seven-page employment contract (plus Exhibit A and three Invention Disclosures) and for a financial-sector software company with just a three-paragraph NDA.
Guess which had the better work environment?
Mark
on 30 Mar 10My former employer didn’t have employment contracts when I started.
Then we hired one individual, who told us he was going to need to take his 2 weeks vacation very early due to prior engagements.
He starts, works for one week, is “sick” for a week, take two weeks vacation, then quits. One month of pay for about 2 days of actual work. He was negotiating with his old company during this time and ended up going back for more pay.
We had employment contracts after that.
Darren
on 30 Mar 10Quite naive I think. What if you think the employee has done something “wrong”, and they don’t think they have? Who has a leg to stand on, and who has the “pull” if it went to court?
Surely contracts are to protect both parties? I really wish it was as simple as “let’s shake on it” – but I can’t see it happening outside the bubblegum world of companies like 37signals. Good luck if you try it!
Andrew Mitton
on 30 Mar 10I’m an attorney and think this is a great conversation. It’s good to question what attorneys do for you.
Here’s my quick take. Employment agreements are like prenuptial agreements. Starting out a marriage with an agreement about potential disagreements and your divorce is a bad way to start off a marriage. But when you have lots at stake and get divorced, you’ll be happy you have one. If you’re one of the lucky ones and have a happy marriage, the agreement is useless.
An employment agreement doesn’t have to be complicated and is a good way to set expectations such as pay, bonuses, etc. A basic checklist of items will make sure you don’t miss items. It’s also a good idea to include a severance section. Most lawsuits happen when an employee is terminated. Even though an employee is at-will doesn’t mean that you can terminate them for illegal reasons. There are lots of ways to get around the at-will stuff. An arbitration or mediation section will help you avoid expensive litigation.
Stan Hansen
on 30 Mar 10How would you feel if you had a key programmer left a note on your desk that said “Sorry, Apple called, see ya!” two weeks before an important launch? Would a contract mean anything to you in that scenario? Probably not, but what if you got a letter from his lawyer demanding vacation pay?
Anonymous Coward
on 30 Mar 10Here at ∞Idiots we’ve been planning to simplify & we’ve thought “wages? Hey! What are they good for? Absolutely nothing”. We’ve been doing some research and apparently some of our predecessors down south didn’t actually bother with this whole payment malarky.
They just paid a guy upfront for their workers, who had recently arrived en masse from foreign climes. And boy, weren’t those workers happy? They had all the cornmeal they could get their hands on, and only felt the lash on days ending in day.
Here at ∞Idiots we think now wait just a cotton-picking minute, shouldn’t things return to the good ol’days when things were simple and owners were real Southern gentlemen whose word was their bond. And the workers were, well, bonded…
Who needs these new-fangled Yankee ideas like wages and workers’ legal rights when you can have a handshake?
What do y’all think?
Brett
on 31 Mar 10What if what if what if what if what if what if….
Wow. There sure is a lot of distrust – and fear – out there.
I don’t know anything about 37signals except what I’ve read on SvN and in Rework. Knowing only that, I’d have no problem going into this “contractless” relationship. As another commenter mentioned, you guys hire linchpins, people you can trust. And they know they can trust you.
Sounds like a very reasonable thing to do for 37signals, everyone else would need to look at their own situation.
Overseasunderlord
on 31 Mar 10Alternative techniques for establishing mutual trust and fostering a culture of loyalty between the upper and lower echelons of an organisation:
1: In the event the relationship prospers then mutual reward is best negotiated and renegotiated for an ongoing long term relationship.
2: In the event the relationship fails or misses expectations than mutual punishment should be equally distributed but unfortunately this is much more difficult to enforce and historically these situations tend to be resolved in favor of the more powerful partner.
Organised crime has battled with these exact issues for years but management innovations in this sector are largely ignored by the mainstream business media. Particularly since most of the innovation in this sector is now developed overseas in emerging markets.
Below are some examples for conflict resolution that have proven effective in this sector and could be adapted to suit your needs.
1: Instead of a non compete agreement you could show potentially disgruntled employees video clips taken from a distance of their family while at work or play. e.g. a child being collected from a local school.
2: If an employee feels they are being exploited they can cut deals with other industry players such as the local police or military offering up valuable information they are in possession of.
3: Often a dispute or a potential dispute can be settled with simple but effective torture techniques. Many of which can be so psychologically compelling that their benefits often distribute throughout an organization even when directed at a single party.
4: Research has shown that the great majority of problematic relationships have their roots in the simple imbalance of power between two parties. The presence of a third party and much stronger mediator such as a Don or a Godfather type figure often leads to a top down management style that values fairness and reputation at many levels.
5: Ultimately contracts do still have a part to play even in these handshake driven organisations. The modern system of contract issuance and resolution again tends to favor the wealthier party, but the growing availabailty of independent operators has lead to increasing competition and lower cost executions. Its therefore unwise these days for even the wealthier party to actively mistreat their counterparties at any level.
Countless future contract disputes are likely to be resolved with nothing more unobtainable then a standard workshop hammer, a decent pair of running shoes and good old fashioned determination and willpower.
Nicole
on 31 Mar 10As a litigator who deals frequently gets stuck with the mess after an employment relationship breaks down, I know that having a clear, written agreement is the second best way employers (or employees) can protect themselves against frivolous claims. The best way is to have perfect understanding of human nature and only associate with honorable people.
Helmut Baker
on 31 Mar 10“JF 29 Mar 10 Helmut:
We don’t have vacation limits. The limit is “be reasonable”. If we think you’re taking too much time (or not enough), we’ll talk to you about it.”
So when an employee decides to leave, how much ‘reasonable’ outstanding vacation time payout can she expect to receive from you guys?
Derek Scruggs
on 01 Apr 10We have a very basic offer letter and an NDA. We spend more time on non-contractual stuff such as a 30 day check-in we do for all new hires as well as a 360 review after 60 days.
And BTW we’re hiring: http://www.surveygizmo.com/company/jobs/
Syd Salmon
on 01 Apr 10Up until a month ago, I would have agreed with the ‘handshake approach’. In fact, we generally use this model with our portfolio companies.
A model employee started having difficulty performing. No progress was made with coaching, etc. Ultimately, we had to sever the relationship. Then said employee “went postal.” In addition to other things, the individual impersonated them self as the majority shareholder to our ‘cloud service’ providers and gained access to key accounts disrupting the business.
Would an employment contract have helped avoid this situation? It’s doubtful, but now we have fewer tools in prosecuting the case.
Prenuptial agreements are used in loving marriages. Likewise, we will be creating “prenuptial agreements” to ensure that all parties are clear about their roles and responsibilities.
Brett Kokinadis
on 01 Apr 10Why not keep an agreement but make the agreement of such agreement electronic, such as in your time card system or intranet. The terms of the agreement would comply with
-2000 U.S. Electronic Signatures in Global and National Commerce Act (ESIGN) - Uniform Electronic Transactions Act (UETA)
Matt B.
on 01 Apr 10I was let-go from a 3-year consultant position and when one of their clients, whom I worked on a project for, found out, they wanted to hire me.
Do you really remember all of that mumbo jumbo stuff in the contract? I didn’t. I had to go dig that thing out and blow the dust off of it. Sure enough, in the fine print, it said I was not allowed to work for one of their clients, up to one year after ending employment.
Anonymous Coward
on 02 Apr 10You’re looking at the contract in the wrong way. It’s not the paper that’s important – it’s the meeting of the minds. And what better way to ensure that minds meet than to write it all down? It’s not the CYA that’s so valuable (although, I suppose, sometimes it could be!) – it’s the “make sure we really do agree” that matters.
Instead of presenting a contract as a piece of red tape shrouded in mistrust, why not use it as a tool to discuss important points in the hiring process?
Contracts don’t have to suck.
O.S.
on 02 Apr 10How I agree with you guys on this. I’ve worked with one of the largest media corporations in Scandinavia for four years without a written contract.
Not working with a contract symbolizes something I think is very important: TRUST.
I trust my boss, and I would believe he trusts me. Knowing that makes the working relationship enormously better.
Nick Campbell
on 02 Apr 10To me it seems that everyone seems to be missing that /workinghere is a contract and it’s written down which is one of the biggest things advocated. It’s just a really really simple way of getting to the end goal of what everyone wants.
The only thing I might encourage or recommend is that your /workinghere page include a source that shows when something was edited, by whom, and when (similar to how wikis do it I guess). Allow everyone to see it. It allows the document to be a living contract and if ever there is a question of previous statements, there would be a record. Without knowing how your current employment contracts work in regards to all benefits and what not, I would be able to justify the reasons for conflicts beyond that.
I guess the only concern I would have for a system such as this would be does it make the employee feel like he’s not valuable to the company because his terms are flexible like a freelance contractor’s. Don’t know if that would show up though, just something I’d watch for and gather opinions on before implementing.
David Paull
on 04 Apr 10This is an interesting question. I recently started my first company and also didn’t want to fall into the trap of doing things just because that how they’ve always been done. In the end I decided an employment contract (or agreement) was still a good idea in order to deal with non-disclosure, confidentiality and to make the all important “at-will” employment statement (I’m in an at-will state…not all are). So I kept it as short as I could, but no matter how cool and relaxed I want our workplace to be, employment is serious business and still needs to have some formality and legal coverage around it for both sides.
Ryan
on 05 Apr 10Where I currently work, we sign employment contracts on day one when getting the standard orientation rundown by HR. Like most employees, I just mindlessly signed mine for the exact reason you pointed out, employment is at will for either party.
That said, I’ve overheard conversations from one of the operating division GMs where a person left the company to go to the competition. By the tone in the GMs voice and the attitude with which he speaks about this person leaving I can tell there is a bit of tension about the situation. That said, the GM is threatening legal action against this person, for what appears to me (in my overhearing out of the loop observation) a move out of spite.
The employment contract, while a good intentioned CYA and place to document employment facts (salary, vacation, etc.), gives ammunition and fuel to what can become an ego driven “I’ll show you” situation.
This discussion is closed.