Employment Agreements: Five Issues to Watch For

Key Takeaways

• Employment agreements set forth the terms of your relationship with your new employer.
• Typically, the agreement codifies what was covered generally in the job posting and discussed in the hiring process.
• While it’s easy to simply scan and sign an employment agreement, checking five key sections can spare you drama downstream.

You crushed the job search, the interview gauntlet, and the salary negotiation, and you have accepted a promising offer… that came with an email attachment. You’re now staring at it—a wall of text also known as the employment agreement. This agreement is a legally binding contract that lays out basic rules, responsibilities, and rights of the employer and new employee—that is, you.

Employment Agreement: What It Contains

In addition to a start date, a standard employment agreement typically includes various clauses:

• Salary spells out your starting salary or hourly rate.
• Other payments such as commission structures for sales positions and performance bonuses.
• Benefits that the employer agrees to provide, such as a retirement plan, health insurance, stock options, sick leave, and vacation time.
• Responsibilities and tasks expected of you in exchange for all of the above. These elements are typically broadly worded, but some organizations specify them down to your daily or weekly goals.
• Confidentiality prohibits you from sharing an organization’s private information; in some cases, you’ll be expected to sign a separate nondisclosure agreement as well.
• Noncompete clauses specify a period over which you are prohibited from taking a similar position with a competitor.
• Intellectual property grants the IP rights of anything you create, including software and system architectures, to your employer.
• Performance evaluation includes timelines, content covered, and what rights you have and role you play during these reviews.
• Probationary timeline outlines a trial period (typically 90 days) during which you can be terminated if you don’t fit the employer’s needs.
• Termination covers how you or the employer might end your working relationship, including the notice required, grounds for firing, and any severance pay that might apply.

What to Watch For

Both you and the employer sign the employment agreement at the start of onboarding. Before you sign it, read the agreement thoroughly; if your eyes start glazing over, be sure to at least clear them enough to answer the following key questions:

• Are the listed start date, salary, benefits, and any commission or bonus information outlined clearly and in alignment with the offer you accepted?
• Do the job title, duties, and responsibilities match what you discussed?
• Are any remote work options agreed to clearly defined in terms of the time spent on- and off-site?
• Does the noncompete clause seem overly restrictive?
• Does the IP clause extend to software or other intellectual property that you create on your own time?

In some cases, these issues have a logic that might not be clear at first glance. In the IP case, for example, the organization might simply be protecting itself from an employee using work done for the company to field a competing or adjacent application.

Say, for example, your day job is to develop computer-aided design (CAD) systems for architects. Then, in your free time, you create and market a CAD system for fashion designers that has similar functionality. This is probably not going to go over well at the day job. But, if you create a voice-recognition system for your niece’s nightlight? Not likely to be a problem.

Either way, if the IP or noncompete clauses seem overly restrictive, check for what’s reasonable with state or national organizations (such as the U.S. National Employment Law Project). Once you understand the basic limits, you’ll know if they’re outside them and can ask your prospective employer to clarify–and if necessary, to modify the terms.

After all, with these and other clauses, deviations from what you expect could just be a wording or a communication issue. Or: such deviations might flag a problem that you don’t want to face downstream. If you see a problem with your employment agreement, write it out clearly, in an email, and get it resolved before you sign.