You got the job!!! It doesn’t matter if you’re fresh out of college or if you’ve been in the work force for many years; signing on with a new company is exciting, nerve wracking, and worthy of a full out celebration. But don’t pop the cork to the champagne yet. Let’s talk about your employee agreements and stock options.

Now, these forms aren’t always offered, but it can be standard practice depending on the field that you work in. Let’s face it: it’s expensive for a company to hire a new employee. There’s the time that is invested to finding and training the newbie, the cost of the person doing the training, the risky relationships made with clients and office mates if the arrangement doesn’t work out, and the mountain of paperwork to submit and file.

Employee agreements will typically include the following:

  • A list of the employee’s responsibilities
  • What benefits (such as health insurance, vacation leave, disability leave, and so on) come with the job
  • Reasons for termination
  • If the employee finds work elsewhere, they can’t work at a competitor’s business (except right to work states like California)
  • A Confidentiality Agreement to protect the company’s trade secrets and client lists
  • An explanation that the company has ownership of the employee’s work or products (for example, if you write books or invent gadgets for the company),
  • How to settle any disagreements that may arise between the company’s employee agreement and the potential new employee
  • If it is a contract job, you may be employed by the company seasonally, for one year, or maybe indefinitely

It can be daunting signing a binding contract for five years with a company. There are certain loopholes, though. At-will contracts include a clause stating that the employer can terminate an employee for any justifiable reason (obviously reasons involving race, gender, or the like are not justifiable reasons). Likewise, if you choose to leave the company at any time, you may do so (however that may not reflect well on your future resumes). If you signed a contract without an at-will clause, you can still walk out the door regardless of the amount of time left on your contract if your boss treats you poorly. In legal terms, this is called the “covenant of good faith and fair dealing.” If the judge or jury finds that you have been treated unfairly, the employer may be legally responsible not only for violating the contract, but also for breaching his agreement that he would act in good faith.

Secondly, many companies are choosing to offer stock option agreements to their employees as part of their benefits packages. The National Center for Employee Ownership (NCEO) estimates that that approximately 28 million Americans own employer stock through employee stock ownership plans (ESOPs), options, stock purchase plans, and 401(k) plans. That means that about 36 percent of employees who work for companies with stock options actually take advantage of owning stock or options in their company. Hopefully that makes you feel a little less tentative knowing that this is a common practice.

An employee stock purchase plan (ESPP) can be quite lucrative because it enables you to purchase company stock often at a discount from the market price. In the most generous plans, you can buy the stock with payroll deductions of up to 15% of your paycheck. This benefits the business because it increases employee loyalty while the company is getting minor additional revenue without paying out cash benefits. You can profit over time if the stock goes up and you choose to sell. However, let’s not forget that with the dot-com crash not far from the vision in our rear view mirrors, there is no such thing as a sure thing.

There are basically two types of plans to choose from: non-qualified stock options and qualified, or “incentive,” stock options (ISOs). “ISOs qualify for special tax treatment. For example, gains may be taxed at capital gains rates instead of higher, ordinary income rates. Incentive options go primarily to upper management, and employees usually get the non-qualified variety” explains

Still confused? These contracts are not to be signed blindly, and that is why UpCounsel is becoming a go-to resource for timely and cost-effective legal reviews of employee and stock option agreements. Employees from Square, Airbnb, and many others are using the skills and experience of UpCounsel contract lawyers to ensure that they are getting the best contract possible without any surprises thrown in. You can confidently start your new job knowing that these legal documents address your best interests. (Now you can bust open that champagne).

About the author

Christina Morales

Christina helps provide useful business and legal tips on UpCounsel for our customers and visitors. Having over a decade of writing experience in a variety of industries, she has also been very close to the legal space from a young age with family members who continue to practice business and tax law.

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