An Employee Matters Agreement is a legal contract between the employer and the employee. It states the benefits that accrue to the employee subject to the fulfilment of certain terms and conditions. This bipartite agreement is created so there is complete transparency with regard to what the employees are entitled to and this leads to higher employee satisfaction and productivity.
The agreement clearly defines who constitutes an employee of the company, the eligibility criteria and any additional compensation that the company may provide from time to time. The benefits are subject to change and the employees are informed from time to time regarding the new performance criteria in order avail of these benefits.
When do you need Employee Matters Agreement?
An Employee Matters Agreement is drawn up when the company wants to clearly communicate to employees the benefits, they can avail provided they meet the pre-set criteria laid down by the company. The purpose of Employee Matters Agreement is to ensure that the employees are aware of the incentives that they may qualify for if they are able to meet the performance benchmark laid down by the company.
The details of the various statutory benefit plans, the years of service required, salaries, and bonuses are mentioned clearly in this agreement. These agreements are meant to act as incentives for the employees so they can try to achieve more and improve their productivity. The senior employees of the company can see how stock options are calculated.
Inclusions in Employee Matters Agreement
As the Employee Matters Agreement is a bipartite agreement, it is important that the name of the employer and employee are included in the agreement. The Employee Matters Agreement must contain the effective date of the agreement, contact information of the employees, types of defined benefit plans being offered to certain categories of employees, the health and welfare plans, executive benefit plans, additional compensation criteria, indemnification, and the events which lead to termination of service.
The jurisdiction of the agreement and applicable laws of the state are also mentioned in the agreement. The rights and liabilities of the employer and employee must be part of the agreement. The performance evaluation policy of the company is also mentioned.
How to draft Employee Matters Agreement?
While drafting an Employee Matters Agreement, you need to keep in mind the following:
- The agreement needs to incorporate the names of the parties and clearly define the relationship between them.
- The details of the various statutory benefit plans being provided by the company
- The categories of employees who are eligible for the benefits needs to be mentioned in the agreement
- The agreement must be compliant with the laws of the state under whose jurisdiction the company operates
- The events which lead to termination of service of the employee needs to be incorporated
- The performance evaluation criteria which decides the incentives for various employees has to be part of the agreement
- The payment plan needs to be mentioned in detail
- The events which lead to the revocation of the agreement are also mentioned
Benefits of Employee Matters Agreement
The benefits of drafting an Employee Matters Agreement are as follows:
- The company specific and statutory benefits that the employees are entitled to are clearly laid out. This provides the employees with a sense of security and motivates them to be more productive.
- Since the agreement clearly specifies the performance criteria that the employee needs to be fulfilled, the employer benefits from the improved performance of the employee. There is no dispute regarding the responsibilities of the employee.
Drawbacks of Employee Matters Agreement
There are certain drawbacks that an Employee Matters Agreement poses. They are:
- The performance evaluation criteria is at the discretion of the company. Therefore, it is for them to decide the benefits which will accrue to the employee which may not be according to the expectation of the employee
- The same category of employees might get different incentives and this would be demotivating for other employees.
Key Terms in an Employee Matters Agreement
The key terms in an Employee Matters Agreement are:
- Definition and interpretations: The definition of various terms in the agreement such as benefit plan, employment taxes and so on are given in this section
- General principles: This includes collective bargaining agreements, no acceleration of benefits, Amendment authority and certain employment transfers.
- Qualified defined benefit plans: The details of the defined benefit retirement plans are mentioned here.
- Qualified defined contribution plans: Stock considerations, Savings plan and transfer of Plan assets and liabilities are included.
- Health and Welfare plans: Items like reimbursement account plans and time off benefits can be found in this section.
- Executive benefit plans: This contains the non-qualified deferred payment plans.
- Additional compensation matters: Workers’ Compensation liabilities as well as payroll, annual and long-term bonus issues
- Indemnification: Indemnification by parties, procedure for indemnification and certain actions, substitution or subrogation.
What happens when you violate Employee Matters agreement?
When you violate the Employee Matters Agreement, there are legal consequences for both the employer as well as the employee:
- Violation by the employee: When there is a breach of contract by the employee, the employer has the right to terminate the services of the employee. The employee has the right, of course, to appeal against the decision of the employer.
- Violation by the employer: When the employer commits a breach of contract such as not adhering to the payment plan, the employer is then liable to compensate the employee, failing which, he may lose his business license.
If you want to document the remuneration and benefits payable to your employees, an Employee Matters Agreement would be recommended.
Sample Employee Matters Agreement
A sample of the agreement can be downloaded from below.
