What comes to mind when you see the word “contract”?
Probably lawyers, soaring legal bills, and courtrooms – all things that are generally foreign and unattractive to the restaurant industry.
Contracts may seem like an intimidating and expensive formality reserved for the corporate world, but in reality, they’re an easy-to-implement tool for any industry that will save you from legal headaches down the road.
Using employment contracts – rather than handshakes – to seal offers of employment is often worth the upfront investment of resources. That’s why we’ve created this guide to restaurant employment contracts, which covers:
- What an employment contract is
- Why employment contracts are important to use
- Five clauses to include in your restaurant employment contract
- When to use an employment contract at your restaurant
- How to explain it to new employees
Unless you have a law degree (in which case, lucky you!), use this article as a primer on employment agreements, download our contract checklist, then work with a local lawyer to create an employment contract template for your restaurant.
But first, let’s delve into the world of restaurant employment contracts.
What Is a Restaurant Employment Contract?
An employment contract is a legal document that:
- Outlines the terms of employment offered to an employee (a member of staff) by an employer (someone running a business) and
- Describes the conditions of the employee-employer relationship.
In the case of a restaurant employment contract, the employer is the restaurant, and the employee is someone who works at the restaurant.
Employment laws vary depending on the country, state, province or even city in which you operate your restaurant so you should ask your legal counsel for guidance on what type of contract to use with your employees.
For reference, here are a few common employment contracts that can apply to restaurants:
- At-will contract: The most popular type of employment contract in the US, at-will contracts let employers fire employees for any (legal) reason. Discrimination is an example of an illegal reason to fire an employee in the US and many other countries.
- Fixed term contract: Popular in the UK, fixed term contracts are used for temporary employment of a predetermined length of time. A restaurant may use a fixed term contract to look for a temporary replacement for an employee who is on maternity leave.
- Independent contractor contract: Independent contractors (also known as freelancers, contractors, or consultants) are self-employed and technically not considered employees of your restaurant. While a restaurant typically wouldn’t hire traditional roles (cook, server, manager, etc.) as independent contractors, they may hire a social media manager or graphic designer in this capacity.
Congratulations! You’ve made it through employment contracts 101.
Why Are Restaurant Employment Contracts Important?
The restaurant industry can seem like the exact opposite of the corporate world: Employees feel like family, staff schedules aren’t determined by the 9-to-5 grind, and (most) employees don’t work at a desk.
Even if your restaurant skips most corporate conventions, that doesn’t mean your business should forego legal protections taken for granted in the corporate world.
Employment contracts are important for both you and your employees because they put employment terms in writing, which can be referenced at a later time if a dispute arises.
While verbal employment contracts are legally binding in most places, they are hard to prove in court. Written employment contracts can help you stay out of the courtroom, or help you win your case if an employee decides to take legal action.
For example, an employment contract with a non-compete clause (more about these in the next section) would prevent a manager or executive from leaving your restaurant to work for a competitor. A non-disclosure clause in the same contract would also prevent the former employee from sharing your restaurant’s secrets and ideas with their new employer.
Employment contracts shouldn’t just be reserved for your senior staff members, however. If an unhappy server claims they were being paid less than minimum wage, you would use the compensation clause in their employment contract and pay stubs as evidence to prove that isn’t true.
No one likes to think the worst could happen when they welcome a new employee to the team. However, having a contract in place helps protect both parties if something does go wrong.
5 Clauses to Include in Your Restaurant Employment Contract
Now that you understand why using employment contracts at your restaurant are worth the initial effort and investment, it’s time to start thinking about what to include in your contract.
Labor laws vary from country to country, state to state and even city to city, which is why we strongly advise working with a local lawyer to draft and finalize your contract. However, it’s a good idea to familiarize yourself with the basics of employment contracts, so you can work with your legal counsel as efficiently as possible.
Here are five clauses to consider including in your restaurant’s employment contracts:
- Employment status
- Termination pay
- Non-compete, non-solicitation, non-disclosure
- Intellectual property rights
Here’s what you need to know about these five must-have restaurant employment contract clauses.
1. Employment Status Clause
Restaurants may require many different types of employees. Some may be full-time, salaried employees; some may be part-time, hourly employees; and some may be more casual, on-call employees.
Alternatively, if your restaurant is in a beach town, you’ll likely need temporary, seasonal workers to help serve customers during the high season.
It’s a good idea for your employment contract to spell out exactly what the employment status of your employee is.
2. Compensation Clause
Employees may receive a salary, be paid hourly, or be paid with a combination of wages from you (the employer) and tips from customers. Your restaurant’s employment contract should spell out the details of compensation.
Additionally, if employees are entitled to paid vacation, health insurance, and other benefits, those things should be included in this clause of the agreement.
3. Termination Pay Clause
Laws about termination pay tend to differ pretty significantly from one place to the other. Your lawyer can help you determine whether or not an employee will be entitled to receive termination or “severance” pay if you fire them. Some places require that employees be provided a minimum amount of severance pay on termination, while others don’t specify.
In British Columbia, Canada, mandated termination pay kicks in after an employee has worked for an employer for at least three months.
In California, employers are required to pay fired employees their final wages (including unused vacation days) upon termination, but there is no mandated severance pay owed to the employee.
If you are located in an area that requires paying a minimum amount of severance, it is a good idea to include a termination pay clause in your restaurant’s employment contract, so the employee understands what they’re entitled to. These types of clauses can also significantly reduce the amount you might be required to pay an employee.
4. Non-Compete, Non-Solicitation, Non-Disclosure Clause
These three contract clauses are easy to confuse. Here’s an easy way to differentiate them:
- Non-compete clauses prevent employees from leaving your restaurant to work for a competitor, or require employees to wait a certain amount of time (a few months, a year, etc.) before working for a competitor.
- Non-solicitation clauses prevent employees from leaving your restaurant and trying to take other employees with them.
- Non-disclosure clauses prevent employees from sharing proprietary information about your restaurant to others outside of the business.
In general, it’s a good idea to include non-disclosure clauses in the employment contracts of all your employees.
You may want to reserve non-compete or non-solicitation clauses for a manager or executive chef to prevent them from working for a competitor while they have your restaurant’s expansion ideas fresh in their mind, or from starting their own restaurant and bringing your best talent with them.
5. Intellectual Property Rights Clause
If any of your employees participate in creating any intellectual property (such as restaurant logos, promotional materials, signature dishes, etc.), you should make sure to include clauses in your employment contracts that specify that you, the employer, own all of that intellectual property.
With these clauses and your lawyer’s help, you can draft an employment contract that will protect both you and your restaurant’s employees.
When to Use a Restaurant Employment Contract
So when should you use an employment contract at your restaurant?
Offering an employment contract is typically the last step of the hiring process. After you’ve checked a candidate’s references and have decided to hire them, give them a customized version of your restaurant’s employment contract – complete with details about their role and employment status – and ask them to review, then sign.
Once you and your new employee have signed the contract, give your new team member a copy to keep for their records. When the paperwork is done, you can officially welcome your new employee to the team and begin the onboarding process.
Not sure how to present the contract to new employees?
We’ve got some tips for you:
- Don’t save discussions about compensation, time off, and employment status for the presentation of the contract. These major points should be discussed, explained, and negotiated before an employee receives their contract.
- Explain restaurant-specific labor laws to new employees or let them know where they can find this information, so they understand their rights.
- Encourage new employees to read over their employment contract in detail. Give them a day or two to read, sign, and return the contract rather than pressuring them to sign it on the spot.
How you approach the process of creating an employment contract can make or break your relationship with new employees.
How to Draft a Restaurant Employment Contract
Employment contracts provide legal protection to employees and employers in any industry.
BUT, contracts become even more important in a field with high turnover, like the restaurant industry, because employees come and go more often.
Using an employment contract that you’ve written with the help of a lawyer can help you both retain employees AND protect your restaurant. Contracts establish the rules of an employer-employee relationship, build trust, and serve as evidence in court in case of a dispute.
Download our checklist for drafting a restaurant employment contract, then find a local lawyer to pen the perfect agreement for your business.
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